Demystifying Line of Credit: How Do They Really Work?

Demystifying Line of Credit: How Do They Really Work?

13 December 2023

Financial crisis is an experience that no one ever wants to go through but has encountered at least once. Money is an important aspect of our lives and the lack of it leads to need-based borrowing. You consider options like credit cards and loans or borrow from your friends and family, when in need of funds. The lack of finances can be truly detrimental when you have certain things planned but get knocked off by uncertainty. This is where line of credit comes into play to bridge the gap between your dreams and the lack of funds.

What is a Line of Credit (LOC)?

A line of credit is a pre-set limit of borrowing funds set by a bank or financial institution as one of the services offered. An individual can withdraw funds intermittently as and when required at any time until the set limit is reached. Being unconventional, instant line of credit can be considered as the best available financial assistance option as compared to traditional methods like loans. 

Key components of a Credit Line

How does a Line of Credit work?

Generally, a traditional loan or a credit card is what comes to your rescue when in need of funds but line of credit has also marked its place in the finance domain. Flexibility is the main advantage of a credit line service that borrowers can put to their advantage. An individual can withdraw the amount of funds required as and when required, once the lump sum is credit, unlike a loan. Interest rate is also applicable only on the amount withdrawn and not on the entire amount unlike a traditional loan. Repayment tenure of the amount withdrawn can also be decided by the borrower, denoting convenience at its best. 

Unlock financial independence with INDIE

Avail an instant credit line from INDIE by IndusInd Bank – a revolutionary banking app designed for your convenience! With INDIE, you can get access to instant funds of up to ₹5 Lakh in a few clicks. You can withdraw the required amount of money anytime, multiple times without the hassle of paper work. The interest rate is applicable on the amount of money withdrawn/used and you can choose the best suitable repayment tenure as well. 

Use a Line of Credit responsibly!

The usage of this feature should be done for unplanned expenses or emergencies. Always keep a track your outstanding balance and credit limit. Keep a check on interest rates and market conditions to leverage this financial tool effectively. Monitor late or missed payments to avoid negative impact on your credit score. Without careful management, a credit line can lead to accumulating debt.

Disclaimer: Views are personal opinions of the author.
The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.