A line of credit is basically a credit facility offered by an institution or bank to an individual, company or government consumer that allows the consumer to draw upon the credit facility only when the consumer requires funds. Normally this type of credit facility is available to individuals who do not qualify for a personal loan from the bank or another similar institution. Such a facility also allows more flexible borrowing options than traditional personal loans. There are a few basic requirements that a line of credit applicant should meet in order to be approved for a line of credit.
The primary requirement for obtaining a line of credit facility from a financial institution is that you must have a job and be able to prove your monthly income. You will also need to provide the financial institution with proof of address and identity. Proof of residency may be required as well. In order to obtain the loan at the best possible interest rate, a person will need to have excellent credit ratings.
Individuals who are looking to obtain a line of credit facility are usually required to have an asset that they own or possess sufficient collateral to secure the loan. This collateral can be in the form of a property or cash. Often times a person will have to put up his car as collateral in order to get a line of credit with a major credit card provider such as Discover card or MasterCard. People seeking a line of credit through these institutions are usually qualified after filling out an application that is properly filled out and presenting all of the required documentation.
Another type of small business line of credit is the home equity line of credit or HELOC. The way that a home equity line of credit works is that the consumer will borrow a certain amount of money from the lender and then allow the lender to use that money as collateral on a credit line. This line of credit is much like a credit card only that the borrower uses their house as collateral in case they are unable to repay the loan. In order to get approved for this type of credit, it is essential that the applicant has great credit and has been making on time monthly payments for at least three months.
A line of credit can also come in the form of a personal loan from either a local bank credit union or credit card provider. The other option available is to get a credit card with a small line of credit built into it. In most cases these types of cards require that the individual carry a certain amount of credit card balance with them at all times so that if they do not have enough funds available on the card they will be able to make a purchase. This type of credit facility is usually only good for small amounts of money and is not appropriate for individuals that constantly borrow money from their credit cards.
Businesses can obtain a loan from a financial institution in the form of a business line of credit. This is an excellent way to borrow funds when a company is in need of cash but does not have ready access to funds from an external source. The lending terms of this type of loan are not as strict as those for a personal loan and there is no need to ensure that the borrower has a good credit rating. The only factors that are taken into account when calculating the cost of borrowing are the current market value of the assets being borrowed and the current debts that the borrower has.
A line of credit can be broken down into secured and unsecured forms. When an unsecured line of credit from a financial institution is being taken the lender does not require any type of security as a guarantee. This means that the borrower will only be able to borrow the full amount of the market value of whatever the assets being borrowed are. The other type of credit offered to an individual is a secured line of credit. With this form of credit the assets being borrowed are typically pledged as a guarantee of repayment. Because of this requirement the lenders do require that the borrowers have a good credit rating and have a convincing repayment plan in place.
As with all types of borrowing a line of credit can be very useful for debt consolidation. However, as with all types of borrowing a line of credit comes with a number of pros and cons. As the name suggests, the main advantage of having this type of borrowing is the fact that borrowers can access a greater amount of money than they would be able to if they were paying out each time they borrowed. At the same time the main disadvantage of line of credit borrowing is that the borrowers do need to make sure that they repay the money that they owe. For this reason, if the borrower is unable to keep up with the repayments they can lose their credit rating and end up with a poor credit history. At the same time however, by being able to access more money quicker than they would be able to if the payments were spread out over a year many people find that having a line of credit at their disposal can be very useful for debt consolidation purposes.
