A line of credit is a flexible loan from a financial institution that consists of a defined amount of money that you can access as needed. You can repay what you borrow from a line of credit immediately or over time in regular minimum payments. Interest is charged on a line of credit as soon as money is borrowed.
Paying back a line of credit
You'll get a monthly statement showing the amount owing on your line of credit. You must make your minimum payment each month. Usually, your payment is equal to the monthly interest. However, paying only the interest means that you'll never pay off the debt that you owe.
Assuming a borrower who has spent up to their HELOC credit limit, the monthly payment on a $50,000 HELOC at today's rates would be about $372 for an interest-only payment, or $448 for a principle-and-interest payment.
Typically, you're only required to make interest payments during the draw period, which tends to be 10 to 15 years. You can also make payments toward the principal during the draw period. When you pay off part of the principal, those funds go back to your line amount.
The process of paying back the line of credit is simple. You pay back part or all of the capital borrowed from your line of credit at your own pace. However, you must repay the minimum payment shown on your monthly statement.
The minimum payment on most lines of credit is 2% of the balance or $50, whichever amount is greater.
Lines of credit come with variable interest rates, meaning your monthly bill could balloon if interest rates rise. It could take a long time to pay off the balance (or you might never get there) if you're making minimum payments or the payments are interest only. You need to be disciplined to pay it off.
You can pay down your balance at any time. However, you may need to make a minimum monthly interest payment. Offers non-revolving credit. You get the full loan amount and must repay in installments until you've paid off both the principal and interest.
You borrow as much or as little of the maximum credit amount as needed and only pay interest on the amount you use. There's no set payment schedule for a line of credit. While there may be a minimum monthly payment, you can pay down the debt right away or take your time (just be mindful of the interest costs).
LINE Pay offers a way to make payments with your credit cards. Just sign up for LINE Pay and add a credit card to start making payments at LINE STORE and other merchants. Currently LINE Pay can be used in Japan, Taiwan and Thailand. We plan to expand the number of countries and merchants where LINE Pay can be used.
Your account may be suspended. The lender may also be able to take the money you owe directly from your checking account or any other account you have at that bank or credit union. This is called “setoff.”
Creditors like to see that you can responsibly manage different types of debt. Paying off your only line of installment credit reduces your credit mix and may ultimately decrease your credit scores. Similarly, if you pay off a credit card debt and close the account entirely, your scores could drop.
Once approved and set up, withdrawing cash from a business line of credit is usually pretty simple. However, the exact process depends on the lender and the type of LOC. Ensure you carefully review any loan agreement and understand the process.
The average HELOC interest rate is currently 9.16%. If you took out a HELOC, and your interest rate remained the same for the life of the credit line (with a 15-year repayment period), you would pay $307.14 per month.
The only way to access funds from your line of credit is through your linked chequing account. And if you wish to transfer funds from your line of credit, you can only do so to your primary chequing account – which may or may not be the chequing account linked to your line of credit.
Like a credit card, you will pay a monthly bill that shows your advances, payments, interest, and fees. There is always a minimum payment, which may be as much as the entire balance on the account. You may also be required to “clear” the account once a year by paying off the balance in full.
Like credit cards, a line of credit is considered revolving debt and treated similarly when generating your credit score—if you make your payments in full and on time, it will reflect positively in your credit score.
Some lines of credit (including a HELOC) are also considered secured loans. This means you'll put up your property, such as your house, as collateral. If you can't afford to repay your loan, you risk losing your home.
On the downside, HELOCs have variable interest rates, so your repayments will increase if rates rise. Another risk: A HELOC uses your home as collateral, so if you don't repay what you borrow, the lender could foreclose on it.
With a line of credit, you only withdraw the amount you need, when you need it. With a loan, you'll need to make regular payments with interest until the entire loan balance (plus interest) is paid off. With a line of credit, you don't need to make any repayments or any interest payments until you use the funds.