In our daily life, there are some terminologies that you will encounter that might not be that significant to you. Yet, they will have an impact on the way you interpret them. Let’s take for instance the word “line of credit”. You will come across such terminology when talking about debts, loans, money lending, etc. This word may already seem familiar to you, however, what really is known about it.
The credit line is, in reality, an arrangement made between you the borrower and your licensed moneylender as your loan provider. This arrangement will define the maximum existing balance that your lender is prepared to have you maintain. Meaning that a borrower should never go beyond the set maximum balance. They, however, are free to draw down from the line of credit at any time they wish to do so. This will sound rather easy for many borrowers.
One major benefit that borrowers get to enjoy from the line of credit is, different from any normal personal loan, the rate of interest attached with it is not generally charged on the remaining line of credit. The line of credit will also offer more flexibility compared to the regular personal loan. This is so in that you can access a loan on the credit line at any moment you feel the need for some extra funds.
The process of on the line of credit is fairly easy in approach. To start with, once you opt to borrow using a line of credit. You will be required to pay only the rates of interest only on the sum that you have actually borrowed. This means, that no matter the available credit line balance or even the whole amount you have at your disposal to borrow. You will only need to consider the actual credit amount you have taken out against the line of credit.
For instance, when the agreed sum between you and your licensed moneylender totals $20,000. Then it means you are advantaged to borrow an amount equal to or as less. Depending on the amount you want but up to a specified amount limit. Let’s say you have incurred $5,000 line of credit, then the amount you will be paying is only interest charged on that credit amount. Additionally, you will still be able to access the accessible $15, 000 that you can borrow.
Also based on the agreement made, the line of credit can come into 2 distinct forms: unsecured and secured. The secured credit line is actually guaranteed using property or an asset. These items serve as a guarantee for the loan amount you have borrowed. Thus the asset and property can promptly be taken over by your moneylender. But only when a borrower fails to make his repayments.
On the other hand, unsecured credit lines, just as with credit cards, do not require any guarantee by use of any physical assets. Since no collateral is needed for the loan amount borrowed.
Eligibility For The Line Of Credit
You need to be aged 21 years and above
Singaporeans and Singapore Residents: You need to have yearly earnings of S$20,000 and more
For Foreigner: You will require having yearly earnings of S$45,000 and more
Benefits of the line of credit
You can borrow to a total of 6x your monthly salary
The maximum credit limit accessible totals 6x your salary for each month.
It is an easy way to manage an account
You can access your money through Mobile and online banking, ATM, and cheque.
You only get to pay interest on the amount you use only
You only will pay minimum rates of interest on the existing amount at month-end (the interest are incurred on daily basis).
The minimum repayments for each month are affordable
The minimum payments are as low as 3 percent or S$50 each month, depending on the one that is higher.
These Are Some Examples Of Line Of Credit:
Demand Line of Credit
This is another form of a line of credit that, from its name, is only applicable upon the demand. This credit is mostly used to finance margin accounts. It is also popular with personal loans that do not have a fixed term of maturity. The demand lines of credit make it possible for you to take out a specific sum of money each day or based on-demand.
Credit Card Lines Of Credit
By itself, a credit card is a general expression of what lines of credit are all about. This is a revolving loan which allows a borrower to have access to cash up to a set and agreed upon maximum limit.
With this, you can acquire certain loan amounts to the line of credit. Then as soon as you pay for the credit line, you still can use the card again and at anytime. This provided that you avoid maxing out the set limit on your credit card.
Overdraft Line of Credit
This is a form of credit line that is generally accessible by a borrower using their checking account. The overdraft line of credit can help a borrower take out a small loan. This often when you have used more money than is in your account.
Export packing line of credit
This line of credit applies when provided a borrowing facility which will assist exporters they can use it to finance the marketing costs of their trade good by packing as well as transporting the goods ahead of their getting shipped.
Through knowing these important insights will actually impact your understanding of line of credit. As well as what they are all about. Even then you will need to consider several main elements which pertain to it. This will ensure that in future, it will not be hard for you to understand what the meaning behind it is.
The line of credit arrangement defines the maximum existing balance that a lender can let you access without you maxing it. Different from a normal personal loan, the rates attached to a line of credit are generally charged on the amount you use from your line of credit. Importantly only use the amount you need and ensure you repay it in full.