Almost every borrower is familiar with credit cards and car loans. However, did you know that a line of credit is actually considered to be the most widespread type of debt for Canadians? According to the recent report of the Financial Consumer Agency of Canada, HELOCs have become the biggest reason for household debt in Canada over the last 15 years. The survey also found that from 4,800 respondents less than 50% fully knew the terms and conditions of their line of credit. So, let’s get some insight into this type of borrowing and how does a line of credit work.
What Is a Line of Credit?
You may have already come across a line of credit calculator online. But does this lending solution mean? This is an option where people apply just once for a certain credit limit that can be reused on a continuous basis for any personal needs.
The borrower should use a line of credit interest calculator as they are charged interest just on the amount of money they use. You can use the money for any purpose and you don’t even have a specific repayment schedule.
How Does It Work?
It is not that hard to use a personal line of credit Canada. You just need to remember that you have a certain amount of money that you may borrow. You may also take out a small amount from the total sum or take the entire amount if necessary.
The interest is paid only to the amount of money you took out at a given time. The borrower may refill the amount whenever they want. Once you’ve taken all the money, you won’t be able to take out anymore until you begin to refill it.
You don’t necessarily need to find the cheapest places to live in Canada. Any lending institution including a credit union or a local bank can set up a credit line with you. You may get various line of credit interest rates as this amount is variable.
Also, it is very convenient to access the money once your application is approved. You can take the money from the ATM, write a cheque drawn on your lines of credit Canada, or use online banking or telephone to pay the bills and transfer the money to your bank account.
How to Qualify for a Personal Line of Credit
As we’ve mentioned above, line of credit rates can be different. From the line of credit definition, potential borrowers can see that there are no restrictions and special reasons for taking out the best line of credit Canada.
As long as you are over 18 years old, you may submit your application to different finance-related service providers in order to get the line of credit rates comparison and select the most affordable option. The money can be spent on repairs and home renovations, to purchase a vehicle or consolidate higher-interest debt, to cover expenses for education or invest money. This can become a great option even for people who are looking for a loan with bad credit.
Line of Credit Vs Loan
There are some differences between a line of credit meaning and a loan. For instance, if you take out a small personal loan you will have to do regular weekly or monthly payments together with a set interest rate until you fully repay your debt.
Cash loans can be taken to cover any unexpected expenses or to purchase something expensive. The same thing is with a line of credit vs credit card. Typically, credit cards will have higher interest rates and fees in comparison with the line of credit.
On the other hand, using a line of credit requirements Canada, you can receive a revolving type of credit that can be reused again and again without the need to apply for a new loan. It is an endless money cycle that can be borrowed and repaid.
Keep in mind the fact that you will need to pay the interest only on the amount you borrow to spend. Learn more about how is interest calculated on a line of credit so that you are aware of the details. Moreover, there is no specific repayment schedule for this lending solution.
How to Get a Line of Credit
Before you decide to opt for this lending solution, you need to know that there are two types of such loans. An unsecured line of credit is used without any collateral whereas a secured line of credit requires collateral. So, unsecured lines of credit often come with higher interest rates as it appears more risky for the lenders.
Also, take into account the pros and cons of this type of borrowing. The interest rates are generally lower than those for cash loans or credit cards. Annual administration fees, as well as set-up fees, are often not charged too. However, if you don’t control your expenses you may end up having serious financial issues with having such a revolving type of credit.
Learn about the advantages and disadvantages of taking out a line of credit from several lending institutions before you make the final decision. Always remember to borrow wisely and repay the debt in time.