What Are Lines of Credit and How Do You Get Them?

Find out exactly what lines of credit are and how you can get one.

Updated: March 31, 2024
Matt Crabtree

Written By

Matt Crabtree

 

If you are looking for way to access funds or need to borrow money you may have looked into lines of credit. This financing option offers several features and benefits.

They can lend themselves well to your financial circumstances. You might not know what lines of credit are. Or, you may wonder what types are available. You may also wonder how you can get them.

There's some good news. We've provided the answers to these questions in this article. Check this article to learn what lines of credit are and the best ways to get one.

ServiceScoreRegister
1. Selina★★★★★Click Here
2. Funding Circle★★★★★Click Here
3. 365 Finance★★★★★Click Here
4. Polar Credit★★★★Click Here
5. Drafty★★★★Click Here
6. Funding Xchange★★★★Click Here

Lines of Credit: An Overview

You'll likely have heard of lines of credit in the context of finance options.

You'd be right in saying these options give you access to borrowed money. They're a type of an agreement that enables you to borrow funds when you need them. You'll pay back the finance in instalments at a time convenient for you.

Now, you'll find that the line of credit is similar to a business credit card. For example, you'll have a credit limit. This type of flexible loan gives you instant cash access. You'll pay interest, depending on interest rates as you would with a business credit card. However, you only pay interest on the borrowed amount. 

Types of Lines of Credit

A few types of lines of credit are available, so you'll not be limited to one type. Each credit line is suited to different types of borrowers.

Here are some examples.

Business Line of Credit

Your business line of credit is a type of loan that's flexible. It's available to many types of businesses. It will also give you funds when your company needs it.

We advise that this can be as a lump sum or smaller sums each time that add up to your agreed total amount. You'll find that a business credit line can be secured or unsecured.

You'll likely have heard of secured or unsecured loans. They're terms that have a similar meaning in the context of business lines of credit. Our financial experts can advise that these relate to collateral.

They tell whether the lender will require you to submit collateral when you borrow funds. A secured business line of credit will need you to put forward assets as collateral. An unsecured business line of credit will not.

With secured business line of credit, the lender can take the assets if you can't repay it. However, this is not the case with unsecured lines of credit.

Personal Lines of Credit

You've also got personal lines of credit. These options are unsecured. You can use them for personal purposes. Their interest rates can sometimes be higher than business options. We advise that they're ideal for unexpected expenses. They give you access to predetermined limits or funds.

We suggest that a lender will look at credit history details to determine lending risk. The credit history will affect the credit limit. It will also affect the APR.

They're also known as revolving credit arrangements. It means you can borrow funds up to a fixed limit repeatedly. Your limit might be £1,000. If you spend £500, you can still keep making expenses until you reach the £1,000 limit. You'll pay interest on the amount used. 

Home Equity Lines of Credit

Finally, you've got home equity lines of credit (HELOC). These are flexible finance options. As the name suggests, they relate to property. They're low interest credit facilities, and they're secured. With this option, you will put your property forward as collateral. 

You'll be able to access these funds for a few years. This term ranges from between five and 10 years. It's known as a draw period. In terms of this period, once you reach the end, you'll no longer be able to access funds. You'll then enter the repayment period.

While these are flexible loan types, there's a drawback. You'll have to cover couple of monthly payments — your mortgage and HELOC. You might also lose your home if you can't repay.

Benefits of Lines of Credit

Multiple advantages of lines of credit (LOC) exist.

Here are just a few benefits you can gain when you apply for this finance type.

Flexible option: LOCs are flexible options. You'll be able to access funds when required. 

Option for revolving credit: You'll be able to keep borrowing and repaying repeatedly as required. You can do this in line with your credit limit.

Make interest repayments on borrowed amounts: You will only need to pay interest on the borrowed amount. Interest charges aren't due for the whole limit.

Drawbacks of Lines of Credit

We also advise that some drawbacks to lines of credit.

These are the drawbacks our experts suggest you consider.

Overspending risks: You might want to spend more than affordable with this fund. This overspending risk can lead to debt.

Collateral: We suggest that secured credit line options can be risky. If you don't repay, you can lose your assets due to the collateral agreements.

Annual fee payments: You may need to pay annual or account maintenance fees. These fees add to your cost and expenses.

How to Get a Line of Credit

Our advice for getting a line of credit is that you can follow specific steps.

It's not an impossible process. We've listed the steps you need to take for each LOC just below. 

Getting Personal Lines of Credit

Begin by having your personal credit score checked. Higher personal credit scores lead to better approval rates. They also give you better terms. It's worth reviewing this credit score to determine your LOC eligibility.

Then, we advise you to compare multiple lenders' interest rates. At the same time, don't forget to check their fees and terms. This comparison will point you in the direction of the best lender.

Following this, prepare the required documents. Your application will need identity documents. It'll also require you to provide proof of income and bank statements as evidence.

You'll fill out an application with your chosen lender along with the required documents. Once you've submitted the required information, your lender will decide if you're eligible. Once approved, you can borrow funds within the credit limit.

Getting Business Lines of Credit

Start by having your business credit score checked. Don't forget to also check your business credit history. With this information, you'll know your eligibility. You'll also be able to get an idea of the rate of interest you'll be eligible for.

We recommend comparing several lenders' interest rates. Look at the annual percentage rate to do this. At the same time, we also suggest comparing their fees. Make comparisons to find the best options.

Next up, fill out your application form. In this instance, business information will be required. Provide details about your annual turnover and business finances. Submit the form with business bank statements and company account information.

We advise that you'll need to wait for the lender's decision. Upon approval, you'll receive a credit limit. With the business LOC, you'll also get an interest rate. You'll be able to borrow money in line with the credit limit.

Getting Home Equity Line of Credit

Start the process by checking your home equity. You can do this by deducting mortgage balances from the home's market value. Doing this tells you how much collateral you will put forward for the HELOC.

Complete your comparisons between various lenders that offer HELOCs. Ensure you review fees and expected interest rates. We advise that you'll also need to check the eligibility criteria. It's worth checking your credit score for this. However, don't forget to consider the loan-to-value ratio too.

Along with your application, provide property documents and wait for the lender to arrange a home appraisal with professional appraisers. Following the underwriting process and credit check, you will receive the terms of the line of credit if approved.

Best Providers of Lines of Credit — Reviews

We reviewed several lines of credit providers and looked at their key features.

To help you make an informed decision, here are our direct, first-hand reviews.

1. Selina

When we used Selina, we found that it is the first UK provider to offer HELOCs. We were able to receive lower rates than with bank loans. We received a variable rate of 9.5% and were able to draw and repay the finance for five years.

We could access funds when we needed them and only had to pay interests on the withdrawn funds. We received £10,000 for our HELOC and found the application process simple and fast. 

In terms of the eligibility criteria, we needed a personal income of £22,500 and a good credit history. We also needed to have owned a property worth £100,000 for at least six months. The combined-loan-to-value requirements stated that we needed to be within 85%. Since we met these criteria, we were approved.

2. Funding Circle

We used Funding Circle to apply for a business line of credit. The loans available ranged from £10,000 to £250,000. We received a 0% interest rate and did not have to pay an annual fee. We did have to pay a flat fee of 3.9% for each transaction.

We liked that we could use the line of credit for practically any business purpose. We could pay our rent and payroll with this funding option and found it a flexible loan.

The application process was fast. We provided information about our company through the online form. Funding Circle provided us a decision on our credit limit without impacting our credit score. We were approved for the funding and repaid the flat fee in monthly instalments.

3. 365 Finance

Using 365 Finance we were able to receive business lines of credit that were flexible and easy to apply for. We needed to have a turnover of at least £10,000 and to have been operating for at least 12 months. Since we met these criteria, we were eligible.

We liked that we could drawdown on credit continually and receive our cash within three days of being approved for the line of credit.

We used this funding option as a means to enhance business cash flow and handle seasonal fluctuations in our business operations. The flexibility of this option meant we could drawdown whenever we required funds.

4. Polar Credit

With Polar Credit, we could access a line of credit worth £1,000. The interest rate we paid was lowered by 10% on the one-year anniversary of opening out credit. Although we had a 60.23% variable interest rate, this was lowered to 50.23% after one year.

We liked that we could apply for the credit quickly and online. We found that we could make flexible repayments and pay more the following months at any time we chose. We did not face any early settlement fees.

We did have to pay a transaction fee worth 1.65% of the amount we borrowed. We received the funds within 24 hours of being approved.

5. Drafty

Using Drafty, we could apply for a personal line of credit of up to £3,000. We chose £3,000 and found that our credit score was unaffected when we made our application. We only needed to pay interest on the amount we had used and could reborrow funds as frequently as we liked.

We liked that there were no late or early repayment fees and received a fast decision.

We were pleased to receive our funds within minutes after approval and could use as much as we required to resolve our personal cash flow challenges.

6. Funding Xchange

With Funding Xchange, we received a business line of credit. This option came with the option to repay early without paying any early repayment fees. We borrowed £100,000 and the term was 12 months.

We could use the line of credit for business expenses, cash flow management and project investment, and were approved since our credit score was high. We were also pleased that when we applied, our credit score was preserved.

We had a 25% APR and were eligible for fundung sunce we had been trading for 12 months and had a turnover of more than £40,000. Funding Xchange gave us the flexibility and funds to optimise our business performance, so it makes this list of providers.

Lines of Credit: The Key Points

Lines of credit are ideal for handling business expenses. They're also ideal for property owners and those looking for a personal loan equivalent. Credit lines offered by each financial institution will differ. For this reason, make sure you compare several providers.

Check the interest rates and specific conditions before you apply. Then, check your eligibility, gather your documents and complete an application to begin reaping the benefits of a line of credit.

Related Guides:

What Are Lines of Credit and How Do You Get Them: FAQs

What Is the Difference Between a Loan and a Line of Credit?

How Do You Pay Back a Line of Credit?

How Quickly Can I Get Approved for a Business Line of Credit?

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