Discuss the advantages of establishing a line of credit

The Importance of Managing Money Classes: Knowing some of these can help you decide if you do or do not want to use credit cards. Protection of Purchases - Credit cards may also offer you additional protection if something you have bought is lost, damaged, or stolen. Both your credit card statement and the credit card company can vouch for the fact that you have made a purchase if the original receipt is lost or stolen.

Discuss the advantages of establishing a line of credit

Share Loading the player When it comes time to borrow money, options abound. People can go to a bank for a traditional fixed - or variable-rate loan, turn to pawnshops or payday lenders though neither is a good idea apart from the most dire of circumstancesuse credit cards, borrow from friends or family, or even turn to the web and specialized peer-to-peer or social lending or donation sites.

One of the lesser-known and lesser-used options is a line of credit.

Discuss the advantages of establishing a line of credit

Some of this may be due to the fact that banks don't often advertise lines of credit, and potential borrowers don't think to ask. Here, then, are some of the basics about lines of credit.

Disadvantages A variety of circumstances may emerge that will require the availability of significant liquid resources — from the purchase of a vacation home to the payment of a large tax bill to an investment opportunity to an emergency funding need. Liquidating available assets to cover these expenses is not always a desirable option.
Is a Line of Credit the Right Solution for Your Startup? Many small business owners need money to start the business, and existing businesses need money for growth and expansion.
Advantages and Disadvantages of Credit: More For Your Money - University of Illinois Extension For example, most people use credit to buy their homes. The main reason most people use credit is that they do not have the cash to pay the total cost of an item or service at one time.
Advantages and Disadvantages of Credit Cards by MoneySupermarket So what are the pros and cons of having a credit card — and what is the best way to apply for a card and get accepted?

What They Are A line of credit is basically a flexible loan from a bank or financial institution. Banks have only recently begun to market these products to any significant extent. This may be a byproduct of an economy that has reduced loan demand and new regulations that have restricted fee-based sources of income.

Lines of credit tend to be lower-risk revenue sources relative to credit card loans, but they do complicate a bank's earning asset management somewhat, as the outstanding balances can't really be controlled once the line of credit has been approved.

When a Line of Credit Is Useful A line of credit addresses the fact that banks are not terribly interested in underwriting one-time personal loans, particularly unsecured loansfor most customers. Likewise, it is not economical for a borrower to take out a loan every month or two, repay it, and then borrow again.

Lines of credit answer both of these issues by making a specified amount of money available if and when the borrower needs it. Most commonly, individual lines of credit are intended for the same basic purpose as business lines of credit: While he or she might usually rely on credit cards to deal with the cash-flow crunches, a line of credit can be a cheaper option it typically offers lower interest rates and offer more flexible repayment schedules.

Lines of credit can also help fund estimated quarterly tax paymentsparticularly when there is a discrepancy between the timing of the "accounting profit" and the actual receipt of cash.

Personal lines of credit have also appeared as part of bank-offered overdraft protection plans. While not all banks are particularly eager to explain overdraft protection as a loan product "it's a service, not a loan!

Here again, though, is an example of the use of a line of credit as a source of emergency funds on a quick, as-needed basis.

When a Line of Credit Is Useful

The Problems with Lines of Credit Like any loan product, lines of credit are both potentially useful and potentially dangerous. If investors do tap a line of credit, that money has to be paid back and the terms for such paybacks are spelled out at the time when the line of credit is initially granted.

Accordingly, there is a credit evaluation process and would-be borrowers with poor credit will have a much harder time being approved. Likewise, it's not free money. In most cases, the interest on a line of credit is not tax-deductible. Some, but not all, banks will charge a maintenance fee either monthly or annually if you do not use the line of credit, and interest starts accumulating as soon as money is borrowed.

Because lines of credit can be drawn on and repaid on an unscheduled basis, some borrowers may find the interest calculations for lines of credit more complicated and may be surprised at what they end up paying in interest. Comparing Lines of Credit to Other Types of Borrowing As suggested above, there are many similarities between lines of credit and other financing methods, but there are also many important differences that borrowers need to understand.

The Importance of Managing Money: Advantages and Disadvantages of Credit

Also, like credit cards, policies for going over that limit vary with the lenderthough banks tend to be less willing than credit cards to immediately approve overages instead they often look to renegotiate the line of credit and increase the borrowing limit. Again, as with plastic, the loan is essentially pre-approved and the money can be accessed whenever the borrower wants, for whatever use the borrower intends.

Unlike credit cards, lines of credit can be secured with real property. Credit cards will always have monthly minimum payments and companies will significantly increase the interest rate if those payments are not met.

Loans Like a traditional loan, a line of credit requires acceptable credit and repayment of the funds, and charges interest on any funds borrowed. There are also typically fewer restrictions on the use of funds borrowed under a line of credit.

The differences, however, are more considerable.A line of credit is a product that allows you to draw funds against a set credit limit. Whenever you need money, you make a draw request from the lender.

After making a draw, your company has to make regular payments to repay the balance. How To Handle Money > Checking Accounts > Saving Accounts > How to Open a Bank Account > Cash or Credit?

> Advantages and Disadvantages of Credit > How to Open/Apply for an Account. Advantages and Disadvantages of Credit. Like most things, there are advantages and disadvantages to credit cards.

Knowing some of these can . Discuss the advantages of establishing a line of credit. A line of credit is a commitment from the bank to lend the firm up to a certain amount to meet various financial needs.

It provides an opportunity for the firm to establish access to credit even before the exact expenditure decisions are finalized. A line of credit can provide you with more flexibility to make decisions that can improve the opportunity to achieve your most important objectives.

The wealth management professionals at U.S. Bank can help you establish a credit line with good terms and competitive features. Excessive borrowing against a line of credit can get somebody into financial trouble just as surely as spending with credit cards, and lines of credit can also be cost-effective solutions to month.

A line of credit is a type of loan wherein a bank or other lender makes a certain amount of money available to a certain borrower for a particular period of time, called a term. This borrower can be an individual, such as with a home equity line of credit (HELOC), or a business.

Unlike a standard loan, a line of.

Lines of Credit: The Basics | Investopedia