Line of credit: what it is and how it works
It is one of the most widespread forms of financing in our country due to the great advantages it offers to the consumer (convenience, immediacy ...) and because the user only pays interest for what they spend. But what exactly is a line of credit and how can we calculate its added costs? We explain it to you.
Line of credit: everything you need to know before purchasing this product
A line of credit is that amount of extra money that a bank, savings bank or technological financial institution grants to a customer or user for use over a specific period of time. It is up to the consumer to use that balance in full, in part, or simply not to resort to it, in which case they would be exempt from paying the stipulated interest, since these are only assumed on the amount used.
As a beneficiary of that line of credit, you must return the amount borrowed plus interest within the agreed term or through installments. Normally, a small commission for opening or maintaining that line of credit must also be paid, that is, for that extra balance that the bank or financial institution makes permanently available to you.
What are the main advantages of a line of credit?
Among the main advantages of credit lines are their immediacy, since you can have the money right at the moment you need it ; its comfort, because either through the contracting of a credit card or an online credit line, you will have your money in your pocket at all times, either in your wallet or on your mobile device ; the simplicity when contracting the product and renewing it, and the assumption of extra expenses in the form of interest or commissions much lower than those presented by other banking products.
In fact, lines of credit are usually the star product among entrepreneurs, freelancers and small companies , as they can face daily expenses when they have not yet received the relevant benefits from their activity. For all of them, a line of credit means greater flexibility and security when dealing with unavoidable payments, as it is an ideal product to finance short-term payments.
Loan calculator: calculate your line of credit
A line of credit calculator is a tool that will help you know the real and total cost of contracting this type of financial product .
The data that you must take into account to perform this calculation are: the total amount of the credit line, the nominal interest rate for the balance drawn down and the interest rate for the balance exceeded, the commission or opening costs and commission for non-provision, if any, or other related expenses.
As it is a type of loan with a variable disposition, you will pay interest and expenses based on the amount of money requested and the maximum limit available .
At Crédito Sí , where we make transparency a fundamental pillar of our financial services, we have a useful and simple online tool to calculate the total cost of your credit line with us. As you do not charge opening or maintenance interest, you just have to look at the amortization table that appears on our website, where the interest is distributed over the months, you will also have to pay attention to the information related to costs added in case of non-payment.
With Sí Crédito, you can also extend your credit line according to your needs and have the desired money in 15 minutes.
Differences between personal loans and lines of credit
In Credit Sí we have already talked to you before about the differences that exist between personal loans and lines of credit . The latter have been designed so that you can incur small one-off and recurring expenses over time, expenses that you will be able to face after a few days. If what you need is a large sum of money that you will not be able to return until several months or even years have passed, it is best to resort to the figure of personal loans. Of course, in a personal loan you will pay for the total amount borrowed, even if you do not use it at all.
Some tips before hiring your line of credit
In Credit Yes, the last thing we want is for you to get into debt without remedy, we are here to help you when you need it most, not to encourage you to contract an unpayable debt, hence our recommendations before hiring a line of credit include the following:
- Use this type of product only when necessary.
- Calculate the real cost of your line of credit and make sure that you can pay the interest.
- Make sure you can return the loan in at least 30 days.
- Control expenses on an ongoing basis.