Consumers have a variety of different options available when it comes to borrowing money, including installment loans, credit cards, and lines of credit. Lines of credit differ from other types of credit in that borrowers are able to write checks against the credit limit and the repayment terms and interest rates are often more favorable.
Personal Line of Credit
Personal lines of credit take many forms, including a secured bank loan, a line of credit attached to your checking account, an unsecured personal loan, or an open-ended credit or charge account. With a personal line of credit, you may borrow against the credit line up to the limit, and as you make payments, your available credit increases. The interest, fees, and other terms associated with personal lines of credit vary, and in the case of a secured line of credit, the borrower faces the potential loss of collateral if the loan is not repaid. To qualify for a personal line of credit, banks generally require a good credit score, demonstrable income, and something of equal value to the line of credit as collateral.
Business Line of Credit
A business line of credit is generally issued by a bank and may be secured by the property of the company or business, although it is possible to get an unsecured business line of credit. It is also possible to obtain an business equity line of credit, where the loan is secured by your interest in the assets of the business. With a business line of credit, the limits are generally higher, and the repayment terms may be longer or more flexible, with some banks only requiring monthly interest payments. To qualify for a business line of credit, banks consider the current cash flow and projected revenues of the business, as well as the credit score of the business or individual applicant.
Home Equity Line of Credit
A home equity line of credit is a specific type of personal loan wherein the individual establishes a line of credit equal to the value of the amount of equity in his home. Homeowners often use home equity lines of credit to pay off or consolidate debts, fund home renovation projects, or simply draw on the additional funds as needed. The repayment terms, credit limits, and interest rates for home equity lines of credit vary from lender to lender, and banks will consider the value of your home, the amount outstanding on your mortgage, your income, and your credit score in determining whether to extend a home equity line. Since home equity lines are secured by an interest in your home, and the home can be seized if you default on the payments.
Service Line of Credit
A service line of credit may be issued by certain service providers, such as doctors and utility companies, which allows customers to pay their outstanding balance within 15 to 30 days. This is similar to a 30-day line of credit, wherein full payment for purchases may be deferred for up to 30 days.
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