A Line of Credit is essentially an overdraft facility secured against your property. Or you could think of it like a credit card, albeit generally with a higher credit limit.
This type of loan provides the ultimate flexibility in that you can deposit and withdraw funds whenever you choose up to the limit of the facility. Some borrowers actually use them as their primary transaction account and even have their regular pay deposited into the account.
This type of loan generally has a higher interest rate than a normal principal and interest loan but it can provide the ultimate in flexibility for borrowers to manage their cash flows. They are typically useful for investors or those who value the flexibility with their finances and have good financial discipline.
Like normal loans, interest will be calculated on a daily basis on the outstanding balance and debited monthly. Some facilities require that you make a payment equal to the interest charge each month whilst others will allow you to make no payments provided you don’t exceed the facility limit.
However, for those who are not so good at budgeting or those who don't posess sound money management skills, they can easily get out of control.
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