How Do Lines of Credit Work?

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Lines of credit are agreements made with the bank to loan out a predetermined amount of money on demand, which can be set up in advance before purchasing a car or home. Open up a line of credit with the bank in preparation for large purchases with information from a financial manager and currency trader in this free video on finance.

Part of the Video Series: Credit Information & Tips
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Video Transcript

I'm Roger Grah, we're here today to talk about how lines of credit work. A line of credit is merely an agreement ahead of time that you've made with somebody, a bank typically, where they will be obligated to lend you money. An example might be, you think that you might be buying a car in the future. You don't know but you think. And you've gone to your bank ahead of time and you've said, look, I think maybe I'm going to be buying a car and when it comes time to do it, I don't have to come here again and fill out the forms and all of that. I'd like to be ready now. So the bank can look at you and say, sure, and they will give you the forms to fill out as if you are making a loan at that point. And what it becomes, is an agreement between you and the bank and the bank is obligated to loan you money on demand. And when you're ready, you say I need it! And they're obligated to provide it for you immediately. So that you don't have to wait a day, or a week or a month in order to have your credit score and rate identified. And that is how lines of credit work. I'm Roger Grah.

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