For those of you wondering how lines of credit work, they’re not much different than traditional credit cards. In essence, a line of credit is a set amount of money you can borrow from. As long as you stay within the limit, you only pay back what you owe; however, you’ll also have whatever money is left in the remaining balance. Nonetheless, once you pay off what you’ve used, you’ll have the total maximum amount of credit to draw from again.

The benefit of a line of credit is that you only pay interest on what you’ve used. So, once you’ve created a line of credit, you’re not paying anything until you borrow money.

How Lines Of Credit Work

  • Home Equity
  • Difference Between Lines Of Credit And Home Equities
  • Credit Cards And Lines Of Credit
  • Line Of Credit “Loan” Terms

Home Equity: How Lines Of Credit Work

For most people who are familiar with lines of credit, a home equity is the most common type. A home equity is basically how much of your home you actually own. Beyond that, a home equity line of credit more-or-less will place whatever portion of your home you truly own up as collateral. A common reason as to why home equities are used as often as they are is because it provides people with a substantial amount of money at lower interest rates (mostly because they’re safe bets for banks because the house is the collateral).

Ultimately, like any other loan, your credit score and income play a big role in how much credit you can obtain.

Differences Between Lines of Credit And Home Equity Loans: How Lines Of Credit Work

Since there is a home equity line of credit and a home equity loan, it’s important to go over a few key differences.

When it comes to a home equity line of credit, you only borrow what you need, when you need it. So, as long as you don’t go over the maximum limit, you can still withdraw from the line of credit any number of times you need to.

However, a home equity loan provides you with all of the money up front. With a home equity loan, you will pay a set amount during a scheduled payment period. Beyond that, you will ultimately pay interest on all of the money, even if you don’t use it all.

With home equity loans, your payments will be consistent with fixed rates. In comparison, home equity lines of credit will vary based on how much money you need to use and when you need to use it.

Credit Cards And Lines Of Credit: How Lines Of Credit Work

As we talked about earlier, lines of credit are very similar to traditional credit cards. In fact, lines of credit more-or-less operate in the same way. For businesses, you can loans that are business credit cards as well as lines of credit.

Lines Of Credit “Loan” Terms: How Lines Of Credit Work

Since lines of credit have revolving funds, it means they can last indefinitely. However, once you withdraw cash, you will have a period in which you must repay a set amount regularly.

Finance Factory Can Help You Create A Line Of Credit!

Are you interested in how lines of credit work? Finance Factory can help! If you’re looking for a line of credit, let’s chat! Get pre-qualified right now with our quick-step pre-qualification form! And don’t worry, this will not result in a hard inquiry of sensitive information. We just want to learn more about you and your business. Click below to start!