InvestorQ : Q: What is a line of credit and how does it work?
Anjali Desai made post

Q: What is a line of credit and how does it work?

Anjali Desai answered.
3 years ago

A line of credit is quite a unique credit facility given to borrowers by few lenders. In this, borrowers enjoy pre approval for certain limit of credit (loan) up to a defined period of time.

What makes the facility stand out is its monthly instalment which consists only of the interest amount and will not have a principal component on a monthly basis. You have to repay the principal amount of loan at the end of the tenure of the facility.

The flexibility that a line of credit allows you is very beneficial to businessmen/women who require funds to finance their businesses. You can deposit the funds as and when you get it and withdraw funds whenever required. The best part of the line of credit is that you will be charged interest only on the amount that you utilise.

Your line of credit’s limit may drop along the tenure or remain constant throughout it, thereby giving you maximum availability of funds throughout the tenure.