An All-inclusive Guide to The Line of Credit!

Line of Credit

Line of Credit

In simple words, a line of credit is a banking service that allows you to use the bank’s money within a particular time. In other words, it is a long-term loan a bank gives a client in installments (tranches) over a specific time. This credit allows borrowers to use the loan flexibly and meet all essential obligations. If you don’t use the borrowed funds, the bank doesn’t charge any interest fees. Usually, banks provide personal loan online or offline to legal entities and government agencies. Individuals can also take a line of credit and use the received money for multiple needs and expenses. Online credit loans are suitable for companies that periodically need significant cash to finance investment programs, replenish capital, and eliminate budget deficits. Let’s know more about the line of credit loans.

Difference Between Credit and Line of Credit

Credit The Line of Credit
  • Banks charge interest fees of the entire amount,
  • There is no possibility to renew the approved loan amount,
  • To receive an additional amount, you need to submit a new application and enter a new contract and
  • Your loan may be targeted only to purchase a car, apartment, travel, equipment, or payment for services.
  • The bank charges on the interest are applied to the money spent. It doesn’t include the remaining balance in debt,
  • Upon your request, the bank may increase the amount of credit line over time,
  • The bank will not ask you to make additional documents and submit documents to increase the limit of credit limit,
  • You can use the line of credit to finance a wide range of expenses.

Frequent Users of Credit Lines

Legal Entities

Private companies and firms often use the line of credit to finance their investment projects, replenish working capital and cover the cash gap. Any private organization needs to pay staff salaries strictly on the 10th of each month. The revenue from sales and business activities is uneven most of the time. Sometimes, customers delay payment for a month or two. In such situations, companies use the line of credit to give salaries to their employees at the right time. It can borrow the required amount of money for employees’ wages. Suppose that a company opens a line of credit for 5 million rupees. If the deadline for the employee’s payment comes up, but the revenue did not come, the company can take it from the bank. It can repay the debt in the next two weeks and restore the credit limit once again.

Also Read: 10 Best Tips for Successful Personal Loans

State Or Municipal Organizations

Muncipal organizations

State or municipal organizations also use the line of credit for multiple purposes. Unlike private companies, they don’t have freedom of choice. The terms of the loan are available in the reference book. So, any bank that meets the customer’s requirements can become a lender.

A Personal Line of Credit

personal line of credit

A credit card is a fine example of a credit line. Individuals may have situations when they are out of money, the salary is still a week away, and there are some urgent needs. Using credit cards can help you solve all these issues. The bank sets a credit limit on the credit card. You can use the money at any time and for all purposes. Almost all credit cards come with a grace period. It allows you to use the bank’s money without paying extra fees. If you don’t repay the spent money in the grace period, you will have to pay interest fees to the bank each month for using credit funds. Therefore, it is beneficial to use credit cards, keeping them within the grace period. Many banks give you credit cards with cashback offers if you spend a particular sum in a month. It allows you to save on purchases, usually 1-10%. You should use credit cards in combination with profitable debit cards to help save a considerable amount of money on each transaction. You need to close part of the debt once a month to ensure the bank doesn’t block the credit line.

The Main Advantages of the line of Credit:

  • You can borrow money in installments without making separate agreements every time,
  • You pay interest for the money spent only,
  • The interest rate for a credit loan line is typically less than a regular loan. The bank may calculate the interest rate on more significant amounts separately on each installment.

Disadvantages of the Line of Credit:

  • The bank will conduct strict background checks and evaluate the financial condition of borrowers before issuing a line of credit,
  • The borrower must fully comply with the terms of the agreement. In case of the slightest delay, the bank will not issue the next tranche of money,
  • It would help if you informed the banker about changes in the statutory documents and
  • The bank may impose penalties if you don’t use the line of credit in full.

Currency of The Credit Line:

currency of credit lines

You can open the cash register in rupees, dollars, euros, and any other convertible currency. If you want to use an online credit loan in India, the bank will issue the line of credit in rupees. Depending on your needs, you can get the credit line in any currency.

Different Types of Credit Lines

Indian banks offer several credit lines, which depend on the terms and methods of using funds.

Also Read: Tips to Get Your First Personal Loan From Banks and NBFCs in India

Framework Credit Lines

The bank will offer an amount to pay for the delivery of goods under a specific contract within a certain period. You can use the money for any purpose mentioned in the agreement paper. It may include buying a large amount of office equipment, developing unique software, buying a car for the company, etc. The framework credit line is convenient for banks as it reduces the risks of inappropriate spending by company owners.

Counter current Line

It is like an overdraft- customers can keep their funds in the bank account. If the available fund is insufficient, they can access the bank’s money. Usually, business organizations use this line of credit to get an office on rent, purchase office equipment, and other valuable works.

Instant Line of credit

Usually, a bank opens an instant line of credit; the customer takes money from it. The repayment takes place when you replenish your bank account. There is no specific date for a refund. Instead, the bank sets deadlines. Until then, you need to make a repayment. If not, it will start imposing penalties on you. This type of instant line of credit online allows you to pay interest only for the period when you use the money.

Revolving Line of Credit

It is the most common and highly used credit line. The bank sets the maximum amount and maximum term of the online loan. Borrowers can use the funds as often as mentioned in the agreement without making any additional contract with the lender. The full payment will occur when you replenish the bank account. After initial payments, the bank will restore the credit limit to the amount you repay. It is pretty helpful for personal use and various business purposes.

Non-renewable (simple) Line of Credit:

The bank signs a contract with a customer to provide a certain amount. The applicant will receive it in installments without signing additional documents. If you repay this type of instant line of credit in full or partially, the bank will not increase the credit limit. As soon as you repay the entire amount, the relationship between both parties ends. Business people often use this credit line to purchase specific equipment with payments made in several installments. State institutions or authorities open such lines to finance one-time government contracts at the beginning of the year or in the periods between the main tax revenues.

Helpful Instructions On How to Open A Line of Credit:

You can place a request on the bank’s website for this. Based on the initial review results, bank representatives will contact you for further discussions and clarify additional information. The bank may request the following details:

  • Personal identity documents,

  • Business registration certificate,

  • The latest six months financial statements of your organization,

  • In some cases, applicant’s need to provide a warranty for the line of credit,

  • Papers related to real estate properties, stocks, bonds, etc.,

  • Characteristics of the applicant’s reliability from other financial institutions,

  • The company’s assets.

If bank executives consider you a trustworthy client, they will open a line of credit account and determine its maximum amount. Your ability to pay, liquid collateral, an active bank account, and stable employment with regular monthly income is quite important. If you cannot place collateral, an unsecured line of credit is advantageous. Talk to bank executives regarding this and take all possible steps to take a line of credit without collateral placement. Remember that the successful use of the money received affects future relationships with banking organizations, self-discipline, quality of management, and the ability to make the right decisions.

Repayment of the Credit Line

The credit line agreement regulates the conditions under which you will repay the debt. The general rule is that you need to pay a certain percentage of the actual debt (up to 10%) to the account every month. In addition, you must pay off the debt in full before the contract expires.

Term of the Credit Line

Usually, banks provide an instant credit line online to small businesses for 3-12 months with an interest rate of 15%. Large and medium-sized companies get a line of credit with 10% interest fees. Banks treat large companies with more flexible terms when choosing a line of credit. They also extend the repayment date if required. The bank checks the liquidity of the collateral and the level of stability of the enterprise before issuing a line of credit.

So, it is safe to say that a credit line is an opportunity to receive a large amount of money from a bank in installments over a certain period. This lending method costs borrowers less than a regular loan and is less risky for the bank. Commercial companies, state-owned enterprises, and government agencies often use it. They use the money to fund large projects, purchase equipment, pay off debts, restore working capital, and finance budget deficits. Individuals can also apply for a line of credit. The revolving credit line allows you to restore the credit limit after repayment of the received tranche. The non-revolving credit line serves as a kind of wallet. You can withdraw funds in installments until they run out.

A legal entity can get a line of credit based on its credit history, turnover, and results of its activities in previous activities. You need to submit an impressive package of documents and complete several formalities to get the line of credit for the first time. Individuals can get a line of credit from the bank with which they have maintained an account or from any other bank that offers such a project. You need to keep an excellent credit score (700 or more) and regular monthly income to get a line of credit.


It is ok to say that a credit line is an opportunity to receive a large amount of money from a bank in installments over a specific time for different purposes. This lending method costs borrowers less than a regular loan and is less risky for the bank. It is one of the most efficient ways to get additional money as loans for individuals and large enterprises. When looking for investment, it is necessary to determine the use of cash and access all the risks of a turbulent economic situation. Depending on your characteristics, the bank will offer the most suitable business credit line with a flexible instant line of credit online. You must carefully read the agreement to avoid unpleasant moments and surprises.

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