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Line of Credit
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Line of Credit

A line of credit is a revolving (re-usable) credit account that allows account-holders to borrow money and repay it any time during the term of the loan. Credit cards are lines of credit and so is overdraft protection for checking accounts. There are also home equity lines of credit (HELOCs) that allow consumers to borrow against their homes, personal lines of credit, which are unsecured.

More On Line of Credit

A line of credit is a revolving (re-usable) credit account that allows account-holders to borrow money and repay it any time during the term of the loan. Credit cards are lines of credit and so is overdraft protection for checking accounts. There are also home equity lines of credit (HELOCs) that allow consumers to borrow against their homes, and personal lines of credit, which are unsecured.

Credit cards

Credit cards are unsecured (not backed by collateral) accounts that allow cardholders to make purchases without having cash.  (There are secured credit cards, but because they are secured by a deposit of cash, no real credit is actually extended.) They come with pre-set limits, which may be increased over time if the cardholder maintains a good credit rating. Borrowers can either pay the card balance in full each month, which is what experts recommend, or they can extend the repayment and make smaller payments over time. The longer it takes to repay a balance, the more the borrower will pay for financing.

Home equity LoC

Home equity lines of credit (HELOCs) are secured by home equity. They are mortgages, and if not repaid, the lender can foreclose and take the borrower’s home.  Home equity line interest rates are lower than rates for unsecured accounts because the money is backed by an asset – this makes the transaction less risky for the lender.

Personal lines of credit

Personal lines of credit work in the same way that credit cards do. The borrower can access the funds with a checkbook or a card, or the money can simply be transferred into his or her bank account. The account is revolving; it can be tapped, repaid and reused repeatedly during the loan’s term.