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A cash line of credit is a type of revolving credit where a financial institution extends a specified amount of credit from which a borrower can withdraw money in cash as often as they need, as long as they do not exceed the maximum amount of credit. The line of credit remains open for future withdrawal, and it can be unsecured or secured with collateral. Interest is only charged when the borrower uses the money.
A cash line of credit is a type of revolving line of credit. When a person has one, a bank or other financial institution extends a specified amount of credit from which he can borrow as he pleases. The borrower can withdraw money from the credit line in cash as often as he needs, as long as he does not exceed the maximum amount of credit established by the financial institution. However, when he pays back the money he withdrew, the line of credit is not closed, as it would be with a basic loan. Instead, the line of credit generally remains open for future withdrawal by the borrower.
To understand this concept, it may be helpful to consider an example where a person has a cash line of credit worth $5,000 United States dollars (USD). In such a case, the borrower can first withdraw $2,000 for home repairs and then withdraw $500 for auto repairs; This means that he still has $2,500 USD to use when and how he wants. When you repay the $500 you borrowed, he will have $3,000 to withdraw from. Once you repay the full amount, he will once again have $5,000 as a line of credit. Usually, he doesn’t have to pay back the money he borrows before he can borrow more, but he does have to follow the loan and repayment terms set by his financial institution.
A cash line of credit is often unsecured. This means that the borrower does not have to provide any collateral to obtain an unsecured cash line of credit. In some cases, however, a line of credit is secured with some form of collateral. For example, a person may receive a loan against the equity in her home and take a line of credit instead of a lump sum payment. In such a case, the borrower’s home would be the collateral for the line of credit.
Sometimes people prefer cash lines of credit over traditional loans because of the way interest is handled. With a cash line of credit, a person is not charged any interest until they actually use some of the money in the line of credit. Many people also appreciate the fact that cash lines of credit can be used whenever they are needed, without having to reapply or seek permission from the financial institution.
Smart Asset.
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