The credit line is a relatively new type of borrowing that has only recently entered the Latvian market. In essence, a credit line is the same as a credit card overdraft, but with a few differences. The most significant differences between the credit line and the overdraft are the fixing of the amount of the credit line as well as the determination of the usage and repayment term. What a credit line is different from other types of credit is that the person does not need to specify the amount of a particular loan and who needs it. When drawing up a credit line for a person, a specific credit limit will be set and you can spend as much as necessary on this credit limit. Japan has applied for a credit line, but has not used it, so no payments will be made. Thus, a credit line can be beneficial for those who need money urgently, but also for those who want a security guarantee in the event of unexpected expenses. http://marabi.net has examples
How does a credit line differ from other types of credit?
In essence, a credit line is a loan with a fixed amount of money available, but with a flexible repayment schedule. By drawing up a credit line you will gain access to a specific amount of money that will be available to you for an unlimited period of time and in principle it is possible to choose to repay the credit line only after the money has been spent. In this case, it is important to remember that the interest will be paid from the amount of money spent and as with all types of loans – the faster the loan is repaid, the cheaper it will be to the borrower.
The different terms and conditions of credit line design and repayment may vary depending on the creditor. It is possible to draw up a credit line with banks, as well as with non-bank lenders, and it is worth examining all available creditors before you decide which lender to draw your loan.
How do I get a credit line?
Just as with any other form of credit to draw up a credit line, a person must meet the queue condition before it can draw up a credit line. The rules may, of course, vary depending on the chosen creditor, but the creditors will pay particular attention to the following factors:
- Age of the person
A person must be of age to be able to draw up a credit line. Most creditors have set an age limit for issuing credit lines in the 18-75 age group. There are creditors who only issue credit lines to people who are 20 or 21 years old . There are exactly the same credit institutions that issue credit lines to people under 65 or 70 years of age. These limitations vary, depending on the chosen creditor. Credit institutions may decide on their own and set age limits for the granting of credit, and these limitations are associated with risk factors for lending to individuals. People under the age of 21 are often classified as high-risk individuals, as young people in this age group often do not have a stable loan. Persons over the age of 65 may be qualified in a similar risk group, as individuals at this age may also have limited opportunities to repay the borrowed loan. Read also: Loan from 18 Years or Credit to Penetration .
- Personal credit history
A person’s credit history is crucial to getting a credit line. As with other types of credit, credit institutions are only interested in lending money to individuals who are able to prove that they have faithfully honored their credit obligations in the past.
Poor credit history demonstrates a person’s inability to meet credit obligations, which may mean large financial losses for the creditor. That is why most creditors check the credit history of individuals before issuing loans. Especially in cases where people want to make loans at a higher value.
Negative credit history is for people who have had a problem with credit obligations in the past. This category includes both credit avoidance and late payment. If you have had a problem with credit obligations, the creditor will evaluate all the factors and inform you about the confirmation or rejection of the loan request.
- Personal solvency
Like credit history, a person’s ability to pay is important. It will only be possible to draw up a credit line if the creditor assesses the person as solvent. Just as with any other credit, it is important for the creditor to secure himself in order not to lose. Creditors assess the solvency of each person based on the information they can obtain from a personal account statement. To be able to draw up and receive a credit line, you will need to show a regular income stream in your account. Creditors carefully evaluate each loan application and even if you do not have an official job or income is seasonal, it will be possible to get a credit line if the income is high enough to cover the cost of the credit line. That’s why credit lines have lower interest rates than many other types of credit. By making sure of the customer’s solvency and good credit history, the creditor can afford to grant credits at lower interest rates and more flexible repayment terms.
What are the uses of a credit line for?
A credit line is a type of loan that basically resembles a bank credit card and the amount of credit is usually determined by the borrower’s solvency and the conditions of the selected creditor. The credit line available to each customer is calculated individually based on the information available to the credit institution.
The credit line will be mainly beneficial for people who may incur higher expenses repeatedly. For example, getting a new apartment may require the cost of cosmetic repairs and buying a new home appliance. Perhaps a need for paid repairers may arise, there is a need for an electrician, or you just need to buy a new refrigerator.
A credit line will also be an appropriate solution if you need to cover unexpected bills, such as medical or rehabilitation expenses. A credit line is an affordable solution for people who need flexibility in borrowing. This flexibility can be linked to both the loan amount and the loan repayment terms.
It is worth knowing when choosing a credit line
A credit line is a cost-effective and flexible way to borrow and provide additional funds if you know that you may incur unexpected expenses, but it is very important to assess the need for this loan and repay your loan. The repayment of a credit line is essentially the same as any other type of credit repayment. A credit line repayment schedule will be drawn up in agreement with the credit institution and the amount of monthly payments will be decided. Timely repayment of your credit obligations is just as important as any other credit. If you fail to meet your credit obligations and are unable to repay your credit line, you run the risk of damaging your credit history, going to the so-called ‘debtors list’, and may result in debt collection or even court enforcement.
The need for a credit line should be considered just as serious as choosing any other credit. A credit line is a profitable and flexible type of credit, but reckless use of any type of credit can have serious consequences.
Credit Line – Pros
One of the biggest benefits of choosing a credit line is the fact that interest will only be charged on the amount of credit you spend. Even if your credit line is drawn to more than thousands of euros, but you have spent just a few tens or hundreds of the total credit line, interest will be charged only on that spent amount.
Plus credit lines also have the flexibility that is provided to the credit line recipient. In cooperation with the creditor, the person evaluates and determines for how long he wants to repay the credit line. The maturity of the credit line must be assessed on the basis of the amount of the credit line and the monthly income. Despite the fact that the credit line, like any other type of credit, is wisely repaid as soon as possible, but it is important to remember to set a realistic credit line repayment term. It is important to assess the maturity of a credit line in order to avoid accumulating even higher penalty payments if you are unable to make monthly payments at the agreed time.
Credit Line – Cons
One of the advantages of credit lines can also be the possibility of drawing up a credit line not only for individuals but also for legal entities. Legal entities can also get a credit line, which means more opportunities to develop your business and provide opportunities to increase working capital if there is a need. There may be many benefits to using a credit line if you are a legal person. A credit line can help business expand and develop, hire employees, or as a back-up opportunity when the company’s income and activities are seasonal. Just like in the case of private individuals, when granting a credit line to a legal entity, its solvency is assessed and the credit line size, repayment terms and interest payments are calculated upon leaving it. Depending on the size of your preferred credit line, you may need a collateral or a security to get a loan. If you want to get more specific information about the possibilities of obtaining a credit line as a legal entity, then evaluate your options, the offers available on the Latvian market and contact the selected creditor to get a specific offer.
One of the biggest drawbacks of a credit line is that it is possible to use the credit line at any time. It can also be a big plus at the same time, but simple access to financial resources can result in spending that is not necessary and not urgent. Easy access to a credit line can be too tempting for people who do not have the self-control and willpower to avoid using this credit line for unnecessary spending. Any euro that you will borrow will have to be repaid sooner or later and that is why it is important to assess the need for a credit line and to do so only if there is a good reason. The credit line can tempt individuals to live beyond their capabilities and make spontaneous purchases that are not necessary and that is why Thomas Bigger.lv recommends evaluating their personal motivation for drawing up a credit line.
As with any other type of credit, penalty interest is charged on the credit line in the event of a monthly loan disbursement. These penalty interest rates grow with each passing day, and if payments are delayed for more than 14 days, then creditors can be attracted and, in the worst case, court enforcers. The purpose of these persons is to recover late payments and collect penalty interest and if the person is unable to make these payments, the movable or immovable property of the person may be alienated to cover the losses of credit payments. Late payment delays can have very serious and unpleasant consequences. That is why it is important to remember to borrow responsibly and to assess your ability to meet the negotiated loan commitments.