Nearly everyone has to deal with some financial challenges at some point in his or her life. The reasons for getting into a financial problem might include loss of property or financial support, a failed business venture, and loss of financial aid, among many others. Irrespective of the cause, getting a line of credit is among the most common and effective ways to get out of the financial issues. A few basic facts to know about the line of credit are highlighted below.
Line of Credit Offers a Limited Amount
It allows you to access the money you need as and when you need it so that you can fulfill your financial needs. However, the amount of money you can access as a loan is usually limited. The limit is determined by a variety of factors, such as your credit score, current income, savings amount, assets owned, and many others.
Line of Credit Charges Interest
A line of credit is just a type of loan, which means that you have to pay some interest over the principal amount borrowed. The amount of interest charged can vary based on the lending institution you choose. The interest amount is charged from as soon as you borrow the money. That means that you have to pay the agreed interest even when you repay the money immediately after you borrow.
The Loan Offered Is Unsecured
Even though the amount of money you can access through your line of credit is limited, the loan is usually unsecured. That means you do not risk losing any asset if you are unable to repay the money. However, that makes it a little challenging for lending institutions to lend too much money via line of credit. That is among the top limiting factors regarding the amount of money you can access via your credit line.
Usage of Money Is Not Limited
You can spend the money you receive from your line of credit in whichever way you prefer. There are no limits on where you can spend the money, as is usually the case with other types of loans such as mortgages. The only significant condition is that you have to repay the money plus the interest within a specified time lest you find yourself in deep financial trouble. The interest rate charged and repayment duration depends on the lending institution you choose.