A line of credit is a type of loan that allows the borrower to access funds as needed up to a certain credit limit. With an interest-only line of credit, the borrower only pays interest on the amount of funds they have actually used, not the entire credit limit.
For example, let's say a borrower has a line of credit with a $50,000 limit but has only used $10,000 of it. With an interest-only line of credit, the borrower would only be required to pay interest on the $10,000 they have used, not the full $50,000 credit limit.
Interest-only payments on a line of credit can typically be made monthly or quarterly. However, it's important to note that while interest-only payments can make monthly payments lower, they don't contribute to reducing the principal amount borrowed, and the borrower will need to eventually repay the full amount borrowed, either by paying down the principal or by refinancing the line of credit.
Understanding financial jargon can be overwhelming, and often can even result in borrowers signing onto loan terms they don't fully understand. At Shield.Credit we make sure you have a clear grasp of industry terminology so that you understand how different repayment plans affect the pace and amount of your total payback. Schedule a free consultation with us today!
