A Line Of Credit - What Is It?

Many people do not have a good understanding of what a line of credit is, but it is a very important thing to understand. When you are doing any type of financial planning, contemplating a loan or have any major financial decision to make, an understanding of a line of credit is very helpful.
This article explains when you will use a loan and when you will use a line of credit.
To give the technical definition, a loan is money lent to you for a certain period of time with a fixed interest rate and a fixed monthly payment. You know when you will have the loan paid off at the time that you take out the loan and your paperwork will reflect this fact. Your mortgage is a good example of a loan.
When purchasing a car you obtain a loan. You can discuss with the car dealer or your banker the terms that best fit you and what you want the life of the loan to be. Of course the shorter the life of the loan is the less you will pay back in interest.
Of course, all of your monthly payment is not going toward paying down the principle of the loan. Much of that payment is applied to interest.
Starting with the first payment, only a small portion goes toward the principal and the lion's share goes toward interest. As you progress further into the loan, the amount going to principal increases.
A line of credit is for any purpose which you may not know at the time. You may use a line of credit check to pay off a monthly bill. The interest that you pay will be variable and is based upon the prime rate. The prime rate is an interest-rate set by the Federal Reserve.
Knowing the difference between a line of credit and a loan is helpful in your financial planning. It will help you to make good decisions as to which is best to choose to handle your financial needs.

Article Source: http://www.search4allinfo.com

Looking for answers about how to pay off credit cards faster? You'll find plenty of helpful tips & advice on the Debtopedia website where you can get a free copy of my special report "Secrets Of Credit Card Debt"

Please Rate this Article

5 out of 54 out of 53 out of 52 out of 51 out of 5 

Not yet Rated