Line of credit

From WikiMD's Wellness Encyclopedia

Line of credit

A line of credit (LOC) is a flexible loan from a financial institution that consists of a defined amount of money that you can access as needed and repay either immediately or over time. Interest is charged on a line of credit as soon as money is borrowed. Lines of credit are often used to cover the gaps in irregular monthly income or finance a project whose cost cannot be predicted up front.

Types of Lines of Credit[edit | edit source]

There are several types of lines of credit, including:

How a Line of Credit Works[edit | edit source]

A line of credit is a preset borrowing limit that can be used at any time, paid back, and borrowed again. The amount of interest, size of payments, and other rules are set by the lender. Lines of credit can be secured or unsecured, with secured lines of credit typically having lower interest rates.

Advantages and Disadvantages[edit | edit source]

Advantages[edit | edit source]

  • Flexibility: Borrowers can use the funds as needed and only pay interest on the amount borrowed.
  • Revolving credit: Funds become available again once they are repaid.

Disadvantages[edit | edit source]

  • Variable interest rates: Interest rates on lines of credit can fluctuate, making it difficult to predict the cost of borrowing.
  • Risk of over-borrowing: The ease of access to funds can lead to excessive borrowing and debt accumulation.

Related Financial Instruments[edit | edit source]

See Also[edit | edit source]

References[edit | edit source]

External Links[edit | edit source]

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