Line of Credit Benefits | Line of Credit in Singapore

Loans

Although it is frequently referenced alongside personal loans and balance transfers, a Line of Credit (LOC) is a financial tool that is still largely unknown among Singaporeans. A LOC, like a credit card, is an unsecured instrument that can help individuals meet their financial demands. In this blog, we tell you about Line of Credit benefits. 

The similarities, however, end there. A LOC differs from the other two financial instruments in several ways, and understanding the differences will help you understand how to use a LOC if you ever need to borrow money for any reason. But first, a few things to keep in mind when applying for a LOC. While they do provide advantages, they are best used by the financially aware. This is especially true when banks provide appealing promotional rates: these can be really beneficial, but only if you know how to use the product effectively.

Line of Credit Benefits

What exactly is a Line of Credit?

A Line of Credit is a credit facility provided by banks that charge interest only on the amount withdrawn from the facility. This credit facility’s maximum amount is normally four times your monthly salary. The amount you withdraw from the facility is subject to daily interest charges, as well as fees for obtaining a credit line and annual fees for keeping the account open.

Any amount borrowed through this facility counts against your unsecured debt limit, which is presently set at 12 times your monthly income.

Line of Credit Benefits

A versatile cashflow solution

The primary benefit of a LOC is that it allows you to better manage your cash flow during times of excessive expenditure and/or variable income. You see, the credit amount granted in personal loans and balance transfers is fixed per application. If you need extra credit, you’ll need to submit another application and maintain track of two distinct loans.

In the case of a LOC, however, the credit provided to your account can be used at your discretion, allowing you to draw down the amount you need as and when you need it. There is no interest paid if you do not withdraw funds from your Line of Credit account. Furthermore, all of your transactions are logged in a single account, making it simple to keep track of them. Also, LOCs enable you to convert the amount owed into a balance transfer or a personal loan, giving you a wider selection of repayment options and schedules.

Flexible Repayment Options

The second advantage of a LOC is repayment flexibility. You can repay your LOC on your own timetable, and there are no early repayment penalties if you pay off your debt quickly (unlike personal loans). When dealing with a large loan, the fixed repayment schedule of a personal loan may be easier to manage. If that’s the case, you should know that LOCs also give you the option of converting your debt to a fixed-term personal loan.

Meanwhile, a balance transfer can be utilized to cover an unforeseen need for additional funds, but it must be paid back during the payback period (which can be as little as 3 months) to prevent large interest charges. As a result, a LOC might be a preferable option.

Interest rates are falling

A LOC offers lower interest rates than credit cards, which normally charge approximately 28 percent per year, at roughly 20 percent per year. While LOC interest rates aren’t as low as certain personal loans or balance transfers, they can provide additional repayment flexibility, which some users (for example, company owners) may value more. However, keep in mind that you can always reduce your LOC interest rate by changing your debt into a personal loan.

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