Opening a line of credit can be a great way to access extra funds when needed. It’s a flexible loan that an individual or a business can extend from a bank or financial institution. As with credit cards, you can spend in advance and repay and reuse the money you need. Interest fees are charged only for outstanding balances.
For businesses, opening a line of credit can often mean the difference between keeping a business afloat or shutting it down due to cash flow problems. When the schedule of variable expenses does not coincide with the plan of collections, a business line of credit can help business owners manage their costs.
For individuals, a line of credit helps manage regular costs when monthly incomes are variable. Credit lines are also helpful in affording big-ticket expenses and can also be a source of funds for emergency expenses.
One of the best uses of credit lines is for ongoing projects with variable costs and timelines. However, it's essential to know the potential processing fees when using a personal or business credit line.
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Some lenders will charge a flat fee, while others may charge a percentage of the borrowed total. Ask about these charges before you agree to open a line of credit. Most lines of credit also charge annual fees.
This will help you ensure that you're getting the best deal possible. Fees can vary depending on the lender and the type of credit line you're applying for. The approximate Annual Percentage Rate (APR) for personal credit lines ranges from 7% to 20%.
Processing fees are often included in the fine print of loan documents, so reviewing these carefully before signing anything is important. It is always advisable to ask the financial expert or financial institution’s representative to explain the fine print to you if you have any doubts on certain terms.
When you're budgeting for your line of credit repayments, including any processing fees that may be due, note that processing fees can be waived in most instances if you have a good credit score or agree to a higher interest rate. Some lenders may also allow you to finance your processing fee, which means you'll pay interest on it over time.
Don't just accept the first offer you receive – compare rates and terms from multiple lenders to find the best value for your needs.
If a line of credit works like a credit card, you may wonder why you need one. Isn't it better to get a credit card instead? There is no difference between credit lines and credit cards. Your credit limit is determined by a lender, and both charge interest on outstanding balances. Both charge processing fees and annual fees and provide revolving credit.
In terms of APR, they differ mainly in range. As a comparison, credit cards charge an annual rate of 11.99%-24.99%, while credit lines only charge 7%-20%. Credit cards have continuous repayment terms, while credit lines have flexible repayment terms.
Credit cards can be used for online payment gateways like Authorize.net credit card readers. If the bank where you have an existing credit line allows you to issue eChecks, you can use it with any store that accepts eChecks, like stores using the Authorize.net payment gateway.
Just be mindful of Authorize.net credit card processing fees, which they’d most likely apply for eChecks. However, most of these fees are shouldered by the merchant through some may pass them on to consumers.
If you don’t wish to pay additional fees, you can avoid sites that use Authorize.net credit card processing by using your credit line as a form of cash. Credit lines allow you to take out cash advances against your credit limit for a fee. However, these fees will be lower than the typical ones paid for cash advances to your credit cards. If you don’t want to pay additional fees, you can avoid sites that use Authorize.net credit card processing by using your credit line as a form of cash.
Credit lines are good alternatives to credit cards and traditional loans, so you can gain extra funds when needed. Remember that they are still considered loans, so you are responsible for paying whatever you borrow. Stay within your credit limit and only borrow what you can afford.
Check out our blog section at Processing Card for more articles about using credit cards and credit lines.
Florence Carpenter is passionate about ensuring that the process of opening merchant accounts is as straightforward as possible. She graduated from the University of Michigan with a bachelor’s degree in Marketing.
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