Different Types of Lines of Credit in Canada
If you’re borrowing money on a preset limit, that’s a line of credit. The good thing about this is that you’re not limited on what to do with the money as long as you stick to the specified maximum. What’s more, you can pay back the money anytime, with interest.
But before that, you must understand that there are different types of credit lines, and they work in different situations. This article outlines the types of lines of credit in Canada that you can consider. Let’s dive right into it.
Secured Line of Credit
To get a secured line of credit, you will use your asset as collateral. Your security could be your house or car, which the lender can possess if you fail to pay. The good thing about a secured line of credit is that you can get lower interest rates with this than with an unsecured.
If you get a secured line of credit with your house as collateral, it will be a home equity line of credit (HELOC). The benefit of getting a HELOC is that you can qualify for higher limits with lower interest rates.
Unsecured Line of Credit
With this line of credit, you don’t have to give your assent to underwrite the loan. Thus, it can be relatively hard to qualify for the line of credit but still possible. Because the loan isn’t secured by any asset, you might have to pay a higher interest rate.
An unsecured line of credit can take the form of personal loans. These types of credit are also known as cash advance credit lines. You can use them to consolidate higher interest rates for other expenses. A personal line of credit attracts lower interest rates than personal loans or credit card loans.
These loans also take the form of a student line of credit. These are used specifically for paying post-secondary education fees. They can also help pay basic school expenses such as hostel fees, books, and tuition.
The student line of credit is adapted to an individual situation. You should familiarize yourself with the requirements before you take this line of credit.
Revolving Line of Credit
With a revolving line of credit, you’re allowed to borrow money according to your credit limit. You can then spend the money on anything, repay it and then borrow again in a revolving circle. To do this, you need an account known as an open-end credit account.
The revolving lines of credit are mostly installment loans such as mortgages and car loans.
Non-Revolving Line of Credit
The non-revolving line of credit takes the same form as that of revolving. The only exception is that once you pay, the credit will not be available again. This means you won’t borrow again in the revolving circle since your account will be closed as soon as you make your payment.
Make sure you understand all these types of lines of credit. These include the fees and interest rates, before you take one. Getting a financial adviser to help you choose the best type according to your needs will help you make an informed decision.