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Credit Line – What is it and how does it work?

The credit line is a convenient solution for people who regularly use the opportunity to receive additional cash without submitting further applications and waiting for a decision. The money is available on the account in the form of an allocated limit for a specific amount available. This is an interesting offer for both private individuals and companies. Interestingly, you can also use a non-bank credit line or a revolving loan.

What is a credit line?

What is a credit line?

The credit line is assigned to a specific account. The mechanism of action is almost identical to debit, except that in the case of a credit line you can get access to much higher amounts. That is why it is a financial product that entrepreneurs eagerly use, especially the owners of smaller companies – they always have money, eg for payment to their employees, regardless of whether contractors have settled payments for invoices on time.

The process of obtaining a revolving loan is associated with a fairly large amount of formalities to be met, because it is required to draw up a separate contract, and above all to pass verification of the submitted application in terms of customer credibility. The procedures are similar to those for a cash loan or credit card.

In the event of a positive decision, the money remains available for the period specified in the contract. There is of course an extension option. The credit line has a strict amount, and the selected amount simply increases the balance of funds available in your account. Importantly, the interest is not calculated on the entire amount awarded, but only on the amount used in a given month. This means that if you don’t take advantage of this extra money at all, you don’t have to worry about the cost. Of course, opening a credit line is not free and you have to take into account the preparation fee or commission for granting the credit line. The money can be used in any way, ie by making transfers, withdrawing cash at an ATM or by making non-cash transactions, eg in stores.

A non-bank credit line with many benefits

A non-bank credit line with many benefits

Companies from the non-banking sector are increasingly making their offer more attractive, which is why revolving loan limits have been added to the offer. For obvious reasons, they are not assigned to the account, because no non-banking institution has the right to run individual savings and settlement accounts.

In this case, the amount awarded is paid to the given account and is at the client’s disposal. The operating principles are very similar to those in force at the bank. Therefore, access to financial resources in a certain amount is obtained, which can be used in a given month in part or in whole. However, it is not a revolving loan, despite some similarities. The main difference is the repayment date, in the case of loans usually limited to a month – if the loan is repaid, then one can get another one from the machine.

It is worth emphasizing the advantages of this solution, and above all:

  • Few formalities to meet: Various sources of income are accepted, including those received irregularly, so it is a perfect solution for freelancers, owners of relatively small companies, people living on benefits and with too low creditworthiness for banks. However, you must not have debt. Importantly, the application is submitted only once, and not as it is the case with a traditional loan, that once it is repaid, you must apply again for another one.
  • Flexibility: The customer decides the amount needed. It is also a great financial security, because there is constant, 24-hour access to emergency cash. On the other hand, there is no need to use the available funds in a given month. It is also important that you do not have to pay back the entire amount immediately, but only return the minimum amount in the monthly amount in accordance with the contract.
  • Interest paid only on the amount used: A classic loan means that you must pay interest regardless of the loan amount – the credit line, and in principle the loan line is therefore more favorable in terms of the cost of the loan.
  • Building a positive credit history: Of course, only if the required minimum amount is repaid on time.

The credit line, also from the non-bank offer, is therefore an interesting financial product that gives great freedom in managing your own finances.

The credit line, also from the non-bank offer, is therefore an interesting financial product that gives great freedom in managing your own finances.

You don’t have to worry that you will suddenly run out of cash due to some income slippage. A certain amount is available, with regular repayment you can even count on increasing the available limit. It’s a convenient solution, but it requires some discipline. Delays in payment regulation end with termination of the contract, blocking the credit line and, above all, the need to repay the whole immediately.

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