A line of credit is a great option for frequent borrowers. Business owners especially can benefit from a line of credit, but individuals and even government entities also use lines of credit. But what is a line of credit? What are the benefits of having one? Let’s take a closer look in the next few paragraphs.
What Is a Line of Credit?
So, what exactly is a line of credit? It’s essentially a fixed amount of money that a bank or credit union has agreed to let you borrow if you need it. A line of credit works differently from a term loan. With a term loan, you receive the funds all at once. With a line of credit, you can borrow different amounts of money if those amounts don’t go above your limit. Furthermore, you only have to pay back the money that you borrowed, plus interest. For example, let’s say that you have a line of credit with a bank, and your limit is $1,000. Now let’s say that you borrow $500 from your line of credit. You now have $500 left to borrow. However, once you pay back that $500 you borrowed, your line of credit goes back up to the full $1,000. It’s always there when you need it, as long as you don’t exceed your limit. Does all this sound familiar? That’s because you’ve already seen it in action. A credit card is one way to use a line of credit.
Benefits of Having a Line of Credit
A lot of people prefer a line of credit over a term loan. While a term loan does provide simplicity, a line of credit has other benefits. Many people like the consistent nature of a line of credit. With a term loan, once you spend the money, you can’t go back for more unless you apply for another loan. A line of credit removes that hassle. Now, for those who don’t borrow often but need large amounts of money when they do borrow, a term loan may be the right choice. For those who borrow more frequently but need smaller amounts of money, a line of credit is a viable option.
Where to Apply for a Line of Credit
You can apply for a line of credit at a bank or a credit union. At Bundlefi, we recommend choosing a credit union. Credit unions often have better interest rates and easier requirements than banks.
How to Get Started
If you know that you need a line of credit but don’t know where to start, Bundlefi can help. We match businesses and individuals with their ideal financial sources. Want to learn more? Check out Bundlefi today.