We will find it mainly in the offer of non-bank institutions offering installment and short-term loans (payday loans). As part of the loan line, the non-bank institution signs with the client the so-called loan limit agreement.
What does it mean? During the term of the contract, the customer may freely use the funds accumulated on his loan line. What’s more, he decides what amount he pays out, and then pays in to offset the account limit.
The online loan line is a flexible solution because the duration of the contract can be extended at any time at the customer’s request. This is the main issue that distinguishes it from a revolving loan, in which the contract is automatically renewed.
How does the loan line work?
We already know in theory what a loan line is. Let’s check its operation on an example. Let’s assume that we are signing a loan limit agreement for USD 5,000. These are funds that we can freely use in a given period, e.g. within half a year.
If we choose 1.5 thousand from the account dollars, and after a week we will supplement this amount, our limit still reaches 5 thousand. USD (in accordance with the provisions of the contract). It should be remembered that the loan must be repaid systematically.
The reference period to be agreed with the lender is usually one month. This means that at least once a month the lender should make a payment, thus supplementing the funds on the account with the amount paid, increasing it with interest.
It is transferred to the account of our loan line and at the same time increases the available limit of funds. That is why the loan line is also sometimes called the renewable system.
At the same time, a big advantage is a fact that the customer can request a change in the repayment date, thus adapting it to their needs. How to do it After repayment carried out in the first settlement period, you should inform the lender that we want to change the repayment date.
In most cases, you just need to indicate a different date convenient for us. However, we must remember that this solution is not free, which means that changing the repayment date costs money. Usually, these are small amounts from 10 to 50 dollars. We can change the dates even several times.
Control the amount remaining on your account so that the loan line can be renewed by reimbursing previously paid funds.
How is the loan line launched?
The loan line can be launched via the internet on the website of the selected loan company. So it works like loans for proof because formalities are kept to a minimum. To do this, simply submit the appropriate application and then follow the instructions.
It may happen that you will need to verify our income, e.g. by sending your bank statement. At the stage of completing the application, we must indicate what amount we are interested in and for what period we intend to launch the loan line (the most commonly chosen is 4-12 months).
Filling out the application takes only a few minutes, and after submitting the application, all you have to do is wait for the decision. If the answer is positive, usually on the same day, the funds will be paid into the created loan line. So it is a beneficial solution for people who need money immediately.
Some companies limit the first payment on a loan line to the max. max height 50% of the allocated limit.
Costs related to a revolving loan line
If we decide to launch a renewable loan line, we must take into account the costs, the amount of which usually looks similar to that of payday loans. These include the cost of interest, preparation fee, and commission.
Most often they are strictly dependent on the loan amount. It is also worth knowing that interest, as well as other costs, are calculated only on the amount used. When we withdraw only USD 500 from the available USD 5,000 from the account, interest is charged only on the amount of USD 500.
Renewable loan line – is it worth it?
This solution undoubtedly has its advantages and disadvantages. Let’s take a closer look at them.
The advantages of a revolving loan line include:
- permanent access to borrowed money – the borrower can freely choose funds from his account and spend it on whatever he wants,
- flexibility – the customer decides when to pay back the loan because the repayment date can be changed as desired.
- long loan period – the loan line can be launched for up to 12 months,
- each repayment increases the available financial limit.
However, the loan line is not free from defects. The most common are:
- limited access – only customers with an impeccable credit history will get it,
- risk of getting into the register of indebted persons (in the case of irregular repayment),
- the so-called risk loan spiral.
People who suspect that they may have a problem paying off their debts, e.g. due to a lack of self-control in issuing them, should not consider starting a loan line.
Loan line – who is it for?
The loan line is intended for people who can boast of good credit history and at the same time do not want to use bank loans. It is also an interesting alternative to non-bank loans for 12 months. Importantly, people who apply for it do not need to have high incomes.
Certainly, this solution will also be appreciated by borrowers, for whom flexibility and lack of rigid contracts, as well as short waiting time for access to borrowed funds, are important.