Financial institutions extend lines of credit to governments, organizations, businesses, and individual borrowers. A cash credit is one type of LOC that allows borrowers to withdraw funds on a constant basis.
Lending Requirements and Features
The main benefit for borrowers is that they can draw on the line multiple times and whenever they need cash. LOCs offer many benefits, but banks have certain income and score requirements to make sure that borrowers will be able to keep up with their payments. 
Banks look at your past behavior, including delinquencies, overdrafts on mortgage loans and credit cards, and late payments. Lenders also require financial information such as your annual income, including pension and retirement income, bonuses, commissions, salary, etc. If applying for a home equity line of credit, you may want to list sources of additional income such as separate maintenance, child support, and alimony. Your debt to income ratio also plays an important role. Whether applying for a LOC to consolidate debts or to make purchases, this is a cost-effective way to borrow.
They come in different varieties, including term and demand loans and overdraft protection. LOCs can be divided into secured and unsecured and standard and special purpose lines, which are designed for disadvantaged persons. When it comes to the credit limit, it ranges from $5,000 to $500,000. The limit is based on different factors, including income level, credit score, and outstanding balances such as loans, mortgages, credit cards, and others. This is a good solution for customers whose income is unpredictable.
The funds can be used at your discretion, whether for purchases or travel. You can use the funds for different purposes, but excessive borrowing will hurt your credit score. LOCs are also used for debt consolidation and can save borrowers thousands of dollars in interest charges. Borrowers use LOCs and credit cards to consolidate multiple debts. One of the main benefits is that LOCs are safe and easy to use meaning that you can move funds between accounts, use an ATM, or write checks. LOCs help borrowers to maximize their RSP contributions, and the main advantage is the low interest rate. Borrowers are allowed to make interest only payments. While LOCs offer many benefits, this is not free money. On the downside, some banks charge maintenance fees.
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