A Line of Credit (LOC) is a pre-approved loan limit set by your bank. It is flexible as you can borrow multiple times for different expenses and pay interest only on what you actually use. Consider it as a type of revolving loan where you borrow, repay, and can borrow again within the given limit.
A credit line saves you from the hassle of going through a loan application each time you need funds. This convenience is great, but it is equally important to consider the various fees and charges that can come with it.
Credit line fees and charges | Here is what to look out for
Take a look at the different types of fees and charges associated with using an easy credit online facility.
- Annual fees
This fee is charged every year for the privilege of having a credit line available 24/7. You incur this fee whether you use the credit line or not and the percentage varies depending on your bank and credit limit. Considering this fee is crucial because it impacts the total affordability and value of the credit line.
- Interest charges
Paying interest only on the amount you withdraw is an impressive feature of any credit line. However, the interest rates do not remain fixed. They can fluctuate over time based on your bank, creditworthiness, and market conditions. To keep these costs within your control, it is advisable to borrow the right amount and repay as soon as you can.
- Late payment penalties
Any amount you borrow has to be repaid with interest. If you don’t pay the instalments on time, many banks impose penalties. Repeated late payments also negatively impact your credit score and make future borrowing more costly. It is quite common for lenders to offer less favourable terms and higher interest rates to those with low credit scores.
- Prepayment charges
When you use a portion of your credit line, you have to choose a repayment tenure within which you will pay back the borrowed sum along with the interest. Prepayment charges apply if you pay off a loan before that schedule. Usually, most banks allow you to prepay the borrowed sum without any penalties. However, if you plan to pay a loan off early, it is wise to confirm that your bank doesn’t impose this fee.
Know how to avoid unnecessary credit line fees and charges
Choose INDIE’s My Credit Line by IndusInd Bank to manage your urgent cash needs without incurring unnecessary charges. Based on your profile, you can withdraw up to ?5 lakh anywhere, anytime.
All you have to do is open an INDIE Savings Account, select the ‘Instant Line of Credit’ option and complete your VKYC (video KYC) if required. Now, use the available credit as needed and repay on a schedule that works best for you.
Check out additional tips to avoid unnecessary charges:
| Check annual fees | If your line of credit has an annual fee, make sure the perks you get surpass this cost. |
| Go through the terms | Weigh all the conditions such as interest rates, fees, and potential penalties. |
| Track your usage pattern | Monitor your credit line usage from time to time to avoid overspending. |
| Keep your utilisation low | A low credit utilisation ratio means lower outstanding balances, less interest, and a higher credit score. |
| Withdraw wisely | Withdraw funds only when you need them to prevent high interest accumulation. |
| Plan repayments | Make a repayment plan prior to borrowing. This helps you clear loan balances on time and minimise interest accumulation. |
| Repay on time | Pay instalments on time to prevent late fees. |
Key takeaways
A credit line helps you cover expenses that do not fit your budget. However, this convenience can also come with annual fees, interest rates, and even penalty charges for late or delayed payments.
These costs affect your total borrowing cost, which is why it is advisable to practise prudent financial practices. Only borrow what you actually need, prepare your repayment strategy in advance, and spend the funds in a responsible manner.
