Line of Credit
Also known as Come and Go facilities, Equity Loans or Revolving Lines of credit, these loans offer similar benefits and operating features as the common bank overdraft.
A line of credit loan allows the borrower to establish a credit or facility limit, and then draw from and pay down the loan without restriction. The borrower has the ability to use the entire limit at any time and does not have to comply with an amortised repayment schedule.
Most Lenders who offer these loans require that the monthly interest charge be the minimum payment required to maintain the account. That means that the borrower can determine, how much if any, principal repayment they wish to make.
The credit or facility limit is normally determined by two factors:
- Borrowers ability to repay, and
- Level of equity in the property being offered as security
These facilities have the benefits of allowing the borrower to utilise as much or as little of the credit facility for whatever time frame they require, while still only being charged interest for the outstanding balance. The facilities even allow for the balance to move from a credit balance to a debit balance. Most Lenders will also allow for the borrower to operate their loan account as their transaction accounts, as an ‘all in one’ account.
Important Note: Line of credit loans are not suitable for all people, as the facility allows for the original limit to be reused. Without proper discipline, it is possible to never pay down the loan at all with this kind of loan.