What is a line of credit?

What is a line of credit?

A Line of Credit is type of revolving loan with pre-approved credit limit. The line of credit gives the borrower flexible access to funds, whenever they need it.

All major Canadian banks offer lines of credit to their customers. The funds available in the line of credit can be withdrawn and used at any time. The borrower can withdraw part or all available funds from his line of credit and they can also repay the funds back at any time.

A line of credit is very similar to a credit card because as soon as you repay your balance in part or in full you can use the funds again. That's why the lines of credit are considered revolving credit. A line of credit can be unsecured or secured by the home owned by the borrower up to 80% of the value.  

With most banks you can access the funds in your line of credit by writing a cheque, using your bank card, and via telephone or online banking. Usually the bank you have opened the line of credit with, will require a minimum monthly payment of interest only on  the amount you have borrowed.

One of the major benefits of credit lines is the fact that they have lower interest rates compared to most credit cards. Using a line of credit is very convenient and in effect is no different than using your bank checking account.

Another great benefit is that you can be flexible repaying your loan. If you have the funds you can repay everything borrowed on the credit line at once without a penalty. All in one a line of credit is a great way to have access to funds whenever you need it.

Lastly a secured line of credit is a great way to protect you from fraud. No one can register a mortgage on your property without discharging the existing line of credit.

Always be an informed client.