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Line Of Credit Rate - Understanding Your Line of Credit Rate

Home Equity Line of Credit



A line of credit is the credit provided by a bank or other financial institution to individuals, businesses or governments. There are different types of line of credits extended by financial institutions. These include demand loan, term loan, overdraft protection, etc.



One purpose of taking a line of credit loan is to pay for purchasing a home. This loan is a revolving credit loan in which the borrower’s home serves as collateral. Home equity line of credit rate depends on different factors such as the amount of debt; the present prime time line of credit rates; credit rating of the borrower; the amount of equity in the home; the amount of lenders; and the borrower’s income. Some of the methods that can be used to lower line of credit rate include paying debt in greater amounts before applying for a line of credit loan; cleaning up the credit report; and improving credit score.

The home equity line of credit rate is not fixed, but the line of credit loan that the borrower gets will be a fixed amount. Along with the amount, the time period for which the loan is available to the borrower is also fixed. For example, you may only be able to borrow money for 10 years. When the specified time period for using the home equity line of credit loan is exhausted, the borrower may be able to renew the credit line. If the plan taken does not come with the renewal option, then the borrower will not able to obtain any further money after the period has ended. Depending on the plan, borrowers may have to return any outstanding balance when their credit line expires, or repay the lender over a fixed period.

Once a line of credit rate is calculated and loan approved, the borrower can borrow up to the credit limit without any restrictions. Usually, borrowers use special checks to draw money. Some lenders allow borrowers to draw on the line with a credit card or other means.

The plan may include other restrictions on use of the line of credit. With some plans, there may be a specified amount that borrowers have to withdraw each time they use their credit line, or keep a minimum amount outstanding. Also, with some plans, there may be the requirement of taking an initial advance when the line is setup.
Line of credit rate is determined by considering different factors, and—depending on the plan—the line may be available for a certain period of time.

Additional topics

Financial Dictionary: Accounting, Business & International FinancePersonal Finance - Credit Cards & Credit Management