A revocable line of credit is a source of credit made available to a person or business by a bank or financial institution, which may be revoked or cancelled at the lender`s discretion or in certain circumstances. A bank or financial institution may revoke a line of credit if the customer`s financial situation deteriorates significantly or if market conditions are so unfavourable that a revocation is warranted, as was the case after the 2008 global credit crisis. A revocable line of credit can be guaranteed or secured, the former being usually at a higher interest rate than the latter. Lines of credit are often extended to creditworthy customers by banks, financial institutions and other licensed consumer lenders (although specific lines of credit may not have solvency requirements) to meet fluctuations in the customer`s cash flow, and are also used to represent a customer`s credit limit , that is, the maximum amount of credit given to a customer. For credit cards, the line of credit is usually called a credit limit. It can be called the overdraft limit. In India, banks offer companies cash credit accounts to finance their working capital requirements (requirements for the purchase of raw materials or “current assets” as opposed to machines or buildings called “fixed assets”). The cash credit account is similar to the current account, as it is a current account (payable on request) with a checkbook facility. However, unlike regular current accounts, which are only occasionally debited, the cash account must be debited almost continuously. The extent of the overdraft is limited to the cash limit sanctioned by the bank. This sanction is based on an assessment of the organization`s maximum working capital requirements, net of margin. The organization funds the amount of margin on its own resources.
SBLOCs require the borrower to pay monthly interest rates until the loan is fully repaid or the broker or bank requires a payment, which can happen if the value of the investor`s portfolio falls below the level of the line of credit. A line of credit has built-in flexibility, which is its main advantage. Borrowers can claim a certain amount, but they don`t need to use everything. On the contrary, they can tailor their LOC expenditures to their needs and owe interest only on the amount they derive and not on the entire line of credit. In addition, borrowers can adjust their repayment amounts based on their budget or cash flow as needed. For example, you can pay off the entire balance at once or simply pay the minimum monthly payments. Normally, no interest is due under the line of credit until the customer actually collects some or all of the credit facility in the amount. A fee may also be levied for updating the credit facility, which may be a monthly, quarterly or annual fee.
This can be called “unused line charges,” which is often an annualized percentage for unredealed money. Credit card companies typically charge “annual account fees”; they also generally apply complex interest charge rules, such as. B no interest on purchases when the account is paid in full until the monthly due date, interest on cash withdrawals from the date of these withdrawals, minimum monthly repayment amounts, etc. This type may be secure or unsecured, but it is rarely used. With an LOC application, the lender can claim the amount borrowed at any time. Amortization (until the loan is called) can only be paid or interest-free under the terms of the LOC. The borrower can issue up to the credit limit at any time. From the lender`s perspective, secured line of credit lenders are entitled to seize assets in the event of non-payment.
A credit card is implicitly a line of credit that you can use