Today many banks have lots of offers and different services which has become fully available to clients. But sometimes it can be quite confusing to correctly understand all the advantages of such proposals. On the financial market now there are a lot of bank card types, personal loans or open credit lines. For example, you are actually in need of your home renovation, and you need just a short time loan with low rates which you suppose to pay back in the nearest future. So, in such a situation the better choice will be to get an open credit line for your expenses.
Open loan facilities
Many bank clients are not so familiar with loan products. This is because of poor advertising and low needs compare with businesses. Now let’s see how correct credit line can help ordinary people. A line of open credit is a legally binding bank obligation to issue a loan to a client in a certain amount within a specified time. A credit line contrasts to a one-time loan in the client’s opportunity to receive a loan more than once on the day specified in the agreement, and then, when he needs it, in parts.
Types of the credit line
Credit lines in banking practice can be divided into several types:
- A simple one. This is non-revolving credit line which implies the establishment of a disbursement limit, when the borrower is given the opportunity to take money once during a certain period. Such loan usually is applied in case when the client needs it, but only once. Suppose you have plans to purchase the necessary home equipment. Then you conclude a loan arrangement with the bank and they open a credit line. While you are looking for the best home supplier interest on the loan, it is not paid because the loan has not yet been taken. As soon as you enter into agreement with the shop, you start to pay for it, having received open credit line, and begin to pay full interest for the use of the loan. Imagine that the transaction is concluded, the home equipment is delivered and you begin to return all these money to the bank. Debt decreases but it does not increase the credit limit and you cannot take the money that has been paid back to your account.
- A revolving credit line is a lending scheme, that allows a borrower to receive funds from time to time within the established limit, repay the entire amount of debt or only part of it, and re-borrow during the credit line. Imagine, you periodically need to buy different products. As it progresses, you can make new purchases. When this is essential, you can take a loan again to buy stuff you just needed. And what is more important, you pay only then and only for the fact that you owe to the bank at every single moment of your activity.
Credit line and personal loan
If you decide to take a personal loan, that will mean certain money borrowing from the financial organization. You will be charged with some interest on this money amount with no difference if you used or not. Compared with it, credit line allows you to pay interest on the loan only after you start to use it and not before.
Credit line and credit cards
If you look at the credit card, you will see that it’s quite similar to an open credit line with just a few small differences. A credit card offers the same type of revolving credit as an open credit line but there are four main differences between them:
- You can be free of card interest if you pay back before or on a certain date. So, if you need day-to-day money using, perhaps this is a better choice for borrowing.
- A credit card offers many rewarding programs and points which you can spend absolutely free.
- Credit line has a certain period of time when you can use it. Usually, it’s for five years.
- Open credit line offers a bigger sum amount because it can be spent on larger purchases.
So, as you can see, there are a few advantages from each of them.
Secured credit lines
With credit lines, there are two different types of loan: unsecured or secured. The main difference between them is collateral.
- If your loan is secured, then you will need a collateral, which can be in form of a car, house or something what’s have some kind of financial volume. Because of that, such secured credit line comes with much lower interest rates. Banks, in case of default, can take your voluble assets for debt recovery.
- An unsecured loan has a bigger interest rate because of the higher risks for a financial organization. Requirements for such loans are always higher than for already mentioned secured loans.
Credit lines with house equity
This type of loan is the most popular for credit line applications. It gives you the opportunity to receive money for home repairs or renovation projects. You will need to use your home as collateral. Be aware that bank will get a lien on your property and it can be seized if you stop to pay a credit.
In any case, this can be a great solution for you. All you need to do, is just to use it wiser and more correctly!