Personal Line of Credit

The personal line of credit is a financial instrument that allows individuals to establish an ongoing borrowing relationship with banks and other financial institutions. Lines of credit are typically linked with the borrowers’ checking accounts and used as an extension of the bank account. The credit line amount varies depending on the applicant’s credit history.

Personal lines of credit are available for use for a variety of purchases such as new vehicle, furniture, and other expenses. The recipient starts receiving monthly statements as soon as the line of credit gets activated. Bank clients can choose to carry a balance or pay off their monthly statements, depending on their present financial situation.

Among the key benefits of lines of credit is the lower interest rate, unlike the majority of credit cards. Lines of credit are not only convenient to use but no more complicated than accessing and using one’s bank checking account. Recipients can use telephone banking and online banking services, write checks, and access funding in their bank accounts. An additional benefit is the flexibility of loan repayment. If you dispose of funds, you can pay off the whole amount borrowed on a personal line of credit without incurring a penalty.

All institutions extending lines of credit review the applicant’s credit history, the present amount of debt he owes, and his job history. Lending institutions offer different interest rates that go with lines of credit. In essence, the interest rate reflects the bank’s perception of one’s financial stability. The better the recipient’s credit history is, the lower his or her interest rate will be.

After a credit line has been established, the client is allowed to make purchases but up to a specified amount. If the personal line of credit is through a banking institution, the customer may be issued a special checkbook or the money can be transferred to one’s personal account.

If a line of credit is extended through a credit card provider, you will dispose of a credit card for making purchases. You will be able to shop up to the amount you have qualified for, and a minimum monthly payment is applicable to the accumulated balance. A portion of the monthly payment will go toward the payment of the principal or the actual borrowed amount, and another portion will be used to pay off the interest. As you keep on making monthly payments and paying down the amounts used, you regain access to this portion of money. At some point, the bank or credit card provider may review your account and thus increase the spending limit. However, this decision will be made depending on your repayment history.

In Canada, most of the big banks such as the Bank of Nova Scotia, CIBC, and Bank of Montreal offer lines of credit. CIBC, for example, extends lines of credit with repayment amounts based on the client’s outstanding balance. The limit of the personal line of credit is in the range of $5000 and $200,000.