Credit Line - Personal Line of Credit, Business Credit Line, HELOC

The term line of credit refers to a commitment by a financial institution to make a specified amount of credit available to a borrower. Credit lines are extended to individual clients, businesses, governments, and organizations by different financial institutions. In fact, credit lines represent bank accounts, which can be tapped into at one’s convenience and discretion. Borrowers pay interest on the money withdrawn, but they may have to pay a percentage fee on the unused money (unused line fee).

Line of Credit

There are two major types of lines of credit in Canada – unsecured and secured. The latter requires some asset to be pledged as collateral. In addition, credit lines are offered in the form of export packing credit, demand loan, overdraft protection, revolving credit card accounts, purchase of commercial bills, etc. Export packing credit, for example, takes two forms, post-shipment credit and pre-shipment credit. Packing credit is available to exporters to finance the manufacturing, processing, packing, and purchasing of goods. Demand loans are atypical, short-term loans that have a floating interest rate but no fixed dates of repayment.

Personal Line of Credit

Personal lines of credit are extended by Canadian licensed consumer lenders such as banks and other financial establishments. Some special purpose credit lines do not have creditworthiness requirements, but financial institutions usually grant personal lines of credit to creditworthy clients who seek to address liquidity problems. A number of financial institutions in Canada offer personal lines of credit through their branches in Toronto, offices in Montreal, and in other places in Canada. BMO, for example, offers Bank of Montreal credit lines that can be used for any purpose. Credit lines are offered with a variable interest rate and can be fully repaid without penalty. An itemized monthly statement is offered. Clients in Alberta, customers in Manitoba, and in the other provinces can apply for a personal line of credit with the bank. The Canadian Imperial Bank of Commerce is another financial establishment offering personal lines of credit, along with business credit lines and home equity lines of credit. CIBC personal lines of credit are offered to clients whose borrowing needs and requirements vary throughout the year. Canadian borrowers can use personal credit lines to consolidate high-interest debt, meet their living expenses, for vehicle purchases, home repair and renovations, and anything else. Borrowers can withdraw only the amount required, and interest is not paid on the total credit limit. Clients of the bank also enjoy one-time application process, so they do not have to re-apply. Lines of credit are available to borrowers throughout the country - to clients in Edmonton, customers in Halifax, and in other locations. They can choose from unsecured and secured personal lines of credit. Secured lines of credit come with higher credit limits and lower rates of interest and are secured by the borrower’s home or some other valuable asset. Secured credit lines are intended for major purchases such as buying a vacation or investment property and home renovations. Unsecured personal lines of credit are featured with a quick approval process so that customers can access credit faster. There are optional features to choose from such as personal line of credit life insurance.

RBC Royal Bank is another bank that provides personal lines of credit to its customers. The bank offers financial products through its offices in Manitoba, branches in Quebec, branches in Nova Scotia, and in the rest of Canada. Clients of the bank can take a RBC personal credit line to make home renovations, pay high-interest debts, make investments, and more. Clients may apply for a line of credit even if they do not need the funds right now. They can withdraw money later knowing that they are prepared for unplanned expenses and emergencies. There are two options for credit lines – unsecured and secured lines of credit. Borrowers who take a secured credit line use their guaranteed investments or the equity in a property and are offered a lower interest rate and a higher credit limit. Unsecured lines of credit are featured with competitive rates of interest, based on the borrower’s credit standing, and easy and quick application process.

The Bank of Nova Scotia is yet another financial establishment that offers personal lines of credit. Clients of the bank can visit its Alberta offices, BC offices, branches in Nova Scotia and anywhere else in Canada to apply for a personal line of credit. Scotiabank offers personal credit lines that give clients quick access to money so that they can manage their finances more effectively. Customers are allowed to make payments that are as low as interest only. They are free to pay off the full balance, and no penalty applies. Clients can apply for a Scotiabank line of credit at any of its Canadian branches, online, and by phone.

Finally, TD Bank offers TD personal lines of credit that can be used to pay for clothing and groceries, gas, or big-ticket items such as electronics or a new vehicle. TD Bank lines of credit are a flexible financial option, offered with competitive rates of interest. Clients can make cash withdrawals from the bank’s branches in Calgary, its offices in Vancouver, Halifax, or any other location. Clients of the bank can get an access card to be used at ATMs worldwide and at merchants around the world. They can transfer money from and to their TD personal line of credit using internet banking or telephone banking. In addition, clients of the bank can order checks at no added cost and write line of credit checks. Clients can use a Balance of Account Transfer to transfer balances to their personal credit lines. They are offered with variable interest rates, and there is no penalty for extra payments. Clients who choose a secured line of credit (secured by their home’s equity) can pay interest only. Once the balance is paid off, money is available again, and clients who have opened a credit line do not have to re-apply. Finally, clients are sent detailed monthly statements to check their recent transactions and account status.

Business Line of Credit

Business lines of credit are offered to businesses, and they work like a credit card. Businesses get a specified amount of credit to be used for growth capital and for working. The credit is used over time. Businesses are not normally required to offer collateral unless they have poor credit. The amount offered to businesses depends on their cash flow and credit rating. To be approved for a credit line, a business has to demonstrate ability to repay as well as financial responsibility. Payments are made on a monthly basis, and some Canadian institutions require interest-only payments within a specified period of time. This is done to keep monthly payments low. Borrowers are still allowed to cover the remaining balance or pay the principal whenever they want and without penalty. Business credit lines are often offered with a variable rate of interest, which is based on the prime rate. Financial institutions usually offer the prime rate to their most valuable and creditworthy clients. Banks offer business credit lines to businesses of all sizes.

Business lines of credit are offered by many financial establishments in Canada, and their offices in Manitoba, branches in Ontario, offices in British Columbia, and in other locations. CIBC, for example, offers CIBC business lines of credits to farms and businesses. Major benefits include no set-up fees, instant decision, and competitive pricing. The Canadian Imperial Bank of Commerce offers both secured and unsecured business credit lines, with funds available in US and Canadian dollars. Clients of the bank enjoy the fact that they do not have to pay set-up fees. The only fees they pay are the annual review fee, applicable to the client’s total credit limit, and a low administration fee paid on a monthly basis. The bank also promises quick approval most of the time. It takes just one visit to the local branch to apply, bringing along any supporting documentation.

Another bank that offers business lines of credit is BMO Bank of Montreal. The credit lines offered by the bank allow business owners to make the most of every business opportunity. They can use the money to finance a business project or meet their operating requirements. Clients of the bank are sent a convenient monthly statement that helps them keep track of their cash flow.

Scotiabank also offers business lines of credit to its clients. They can choose from Scotiabank secured and unsecured business credit lines, getting access to low cost credit. Clients are sent monthly statements with all account activity. In addition to credit lines, businesses can obtain a letter of guarantee, note loan, commercial letter of credit, or standby letter of credit. Businesses that have farming operations can apply for a business credit line for agriculture. They enjoy payment flexibility that is tied to seasonable earnings and cash flow. Optional life insurance is also offered. To apply for a business credit line, clients may want to talk to an advisor in their area, visiting the bank’s offices in Edmonton, branches in Ottawa, or in other locations.

Home Equity Line of Credit

A home equity line of credit refers to a type of loan in which the financial institution lends a maximum amount to the borrower within an agreed term or period of time. The collateral in this case is the applicant’s equity in their house. Home equity lines of credit are usually used for major items such as medical bills, home repairs, and education because real estate is among the most valuable asset borrowers have. HELOCs are not used to cover daily expenses, and abuse with home equity lines of credit is said to be one of the causes of the subprime mortgage crisis. Given that real estate is the underlying collateral of lines of credit, foreclosure is the result of failure to meet the loan requirements or pay off the loan. Some financial establishments require that certain level of equity is maintained.

HELOCs are different from standard loans in that the interest rate on the former is tied to an index and is variable. The interest rate borrowers pay for a HELOC changes to mirror the changes in the index’s values. Thus, it is a good idea to find out which index the bank uses and what the margin is. Some financial institutions feature discounted interest rates over a certain period of time, which are called introductory. The introductory rate is very low within a short period of time (usually 6 months). In addition, some financial establishments allow their clients to convert from a variable to fixed rate of interest or clients can choose to convert a portion or all of their home equity line of credit into an installment plan with a fixed term.

Borrowers looking for home equity lines of credit have to be aware that Canadian financial institutions calculate the margin differently. A number of banks and other financial establishments in Canada offer HELOCs to their clients. Clients of the Canadian Imperial Bank of Commerce, for example, can check the CIBC home equity line of credit on offer. Clients of CIBC can use the funds to make investments (e.g. buy a residential property, make major purchases, renovate, or anything else. They get a convenient and flexible access to money on an ongoing basis and enjoy lower interest rates and a high credit limit. Interest is paid only on the funds used, and there are no service or administration fees. Clients can pay by mail, through in-branch deposit, bank machines, online or telephone banking, or Electronic Funds Transfer. In addition, clients can access their money through mobile, telephone, and online banking, bank machines, CIBC branches, checks, and debit purchases. Clients can use free, personalized checks and are allowed to pay off a portion of the loan or the full balance without penalty and at any time.

Another Canadian financial institution that offers home equity lines of credit is TD Bank. Clients of the bank can access funds in two ways - by direct transfer or by check. They can use online banking to manage their accounts and enjoy a low variable rate of interest, tied to the prime rate. Clients of TD can make large purchases or advance cash using the funds in their home equity line of credit. In addition, clients are advised to check with their tax advisors whether the interest paid is eligible for tax deduction purposes. Another option is to apply for a BMO home equity line of credit. This is an ideal solution for extensive renovations, making an investment, or big purchases. Clients who are approved for a HELOC are offered a variable interest rate and get credit up to their available credit limit. Clients can access funds through telephone banking, online banking, ATMs, and cheques. They can cover the minimum monthly payment only, and some clients are offered interest-only payments. The bank offers itemized monthly statements to all clients. Clients who apply for a home equity line of credit can expect to have their application processed within 2 business days. Certain conditions apply to joint applications. When there is a secondary applicant or a cosigner, they have to fill out a separate application.

Clients of RBC Royal Bank can apply for the RBC home equity line of credit. Borrowers who own real estate can use the equity as a way of lowering their borrowing costs. Persons who take a HELOC are offered a lower rate of interest and access to funds that can be used for home improvement projects, major purchases, and unexpected expenses. The money can be used to finance other needs as well, such as college tuition, debt consolidation, and home repairs and renovation. Borrowers can access the money through any RBC branch, be it a Manitoba branch, Nova Scotia branch, British Columbia branch, or anywhere else. Funds can be accessed by writing a check, through ATMs, and through online banking as well. Scotiabank is yet another bank to check with if looking for a home equity line of credit. The credit line offered by the bank is a flexible solution for borrowers who seek to reduce their borrowing costs. They can use funds up to their borrowing limit and for anything they want - credit cards, loans, mortgages, etc. Clients are offered interest-only payments and can access their account using a VISA card.

Regardless of which bank clients choose, home equity lines of credit come with certain costs. These include a fee to assess the property’s value (property appraisal fee), an application fee, up front charges, and closing costs such as title search and attorney fees. In addition to these fees, borrowers may have to pay transaction fees for drawing on the line of credit and annual maintenance fees. These costs may add up to the cost of borrowing. Moreover, the initial charges increase the cost of borrowing for borrowers who take a small line of credit.

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