What is a Line of Credit?
Line of credit can be called as a source of credit instrument which is paved out to the individuals, firms, business people, financial institutions, government, etc. including all the NBFCs as well. The credit line which is there and mentioned are offered to the borrowers in which they can readily utilize for a source of credit or a smaller amount based on the total sanctioned line, which is made by the requirement charge. There are so many types of loans that you can apply in for, and there is a credit line that is mentioned for each and every one of them.
It is not mentioned anywhere that you have to source out something or take the whole amount that is there and provided to you. It’s the majority of the fund which is offered to the interest of the borrower and at to their disposal. This means that the borrowers have a full right on the amount that they can take in. Enterprises and entrepreneurs have to pay a fee for the unused fund, which is there implied on credit. This is the fund that is not withdrawn.
What is the Eligibility for a Line of Credit?
Here is the list of things for which you should be eligible for when taking the line of credit.
- Make sure that you have a good credit score. If you don’t have a good CIBIL score, then your line of credit won’t be approved.
- It also depends on the creditworthiness of the borrower. You have to be worthy of the credit that you are about to get. Or else, you won’t be eligible for the line of credit.
- Decent tenure of business existence is another thing. If you are an entrepreneur and you are applying in for the line of credit, then you need to have a matured amount of running a business.
- All the documents that you produced during the time of taking the credit will be used. It is precious to use them and get them at the lender’s disposal. The documents should be 100% real.
- If you don’t have a stable financial and credit history, then you cannot apply in for a line of credit, as well. Your stable account will help you to get the best credit line that you can ask for only if your credit history is right, then.
- If you have a business and its existence has been managed with profitability, then a line of credit will come easy to you.
What are the Features of a Credit Line?
Here is the list of features of a credit line.
- When you are taking credit lines for the first time, then you don’t have to worry about collateral security. This means that you have an unsecured credit line, and there is no collateral managed for the source that you need to have.
- If you have a credit line, then you can only pay the interest rate for the amount that has been utilized by you. This is the prime thing that borrowers do enjoy. While they have a line of credit, they don’t have to pay the rate of interest in the whole amount. They are just bound to pay for the amount that has been used. Eventually, with the help of this feature, the borrowers can save a large amount of their income by not paying for the unnecessary interest altogether. It can help them to save more.
- The loan amount is higher if you have a credit line sanctioned to your name. This means that if you have a range of credit, then your lender will charge you an amount that can be higher. This way, you can fulfill all the dreams that you have hoped for.
- There are no hidden or extra charges for your line of credit. There are no levied charges which are made on to the original amount that you get from your bank. The unused amount managed for your credit line does not have any hidden cost as well, so it is all good for you.
- Plus, the best thing about having a credit line is that you can have a flexible repayment tenure. Every financial institution that has opted-in for the front of credit does have its flexible repayment tenure. This means that you can pay in for the amount that you have used from the bank at a slower rate. This will help you to utilize your money and then put it into the right source, at the right time. Plus, you can also scope for the EMI repayment option for your borrowed credit.
How to apply for it?
If you want to apply for a line of credit in India, then you need to have valid identity proof along with the income proof, the bank statements, proof of age, and your PAN Card. The requirement procedure for applying in for a credit line is really simple, as well. If you have had a credit card, then the procedure is a whole lot more like that. You have to fill in for some necessary information, and then it will be a piece of cake for you. The entire process is straightforward, and especially if you have a trusted lender.
How does the Line of Credit Works in India?
The LOC or the line of credit works for India, and this means that India can borrow up to 100 million dollars from the US. They can take the big chunk, or they can make for the rate of installment, whichever is possible.
Let’s take an example
Suppose an Indian bank is there, and it has to lend some amount to the other bank. The bank charges the money from RBI and RBI asks the FED to get the money. In short,
- India was able to borrow the payment using the source of LOC.
- The borrowing and the repayment source was done with the use of two currencies: the Indian money and US dollars. So the currency never left their home depots, and there is no rate of fluctuation as well.
- According to the LOC agreement, which was paved out, the interest rate is already fixed. This means that the repayment option in the Indian currency is based on US Dollars, which are being borrowed.
It entirely resides on the fixed-rate that has been set by both the banks. Both the banks of different countries have to agree on documentation, and then only the LOC can work. A line of credit comes in a lot of financial aid. So it is essential to apply in for one and get through the tough times.