The benefits of managing your liquidity with a line of credit

Money at hand

Availability of credit has become one of the most critical aspects in today’s world of financial innovation. In our current fast-changing times, it is critical to have access to convenient and adaptable lending solutions, which could simplify our liquidity crunch. While there are multiple options of credit for the customers to choose from, an open ‘line of credit’ or ‘revolving credit’ is gaining popularity not only among millennials but also with the Gen Z audience. 

A line of credit enables borrowers to take loans up to a pre-established limit, pay them back, and then take new loans as and when needed. With its many advantages, this financial tool can be a great help in optimising financial flexibility and managing cash flow. However, comprehending the effects of credit line limitations is essential to attaining economic adaptability and accomplishing your objectives. A well-managed credit line can be a useful instrument with benefits that go beyond just convenience. 

Let’s look at some key benefits of a credit line when compared to other loan options: 

1. Offers economic flexibility: The flexibility that an open credit line provides is one of its biggest benefits. Without having to deal with the inconvenience of reapplying or waiting through a drawn-out approval process, borrowers can obtain cash whenever they need it. Having a credit line can provide the financial breathing room needed to navigate life’s uncertainties without disrupting your overall financial plan.

2. Drawing interest only on what you use: Optimising interest charges is one of credit lines’ noteworthy benefits. With credit lines, you only pay interest on the money you use, as opposed to typical loans where interest is charged on the complete amount borrowed. This lowers your total interest load and gives you the ability to strategically plan your borrowing and repayment to save expenses.

3. Using unused lines for emergency funding in times of need: Emergency funds are essential to have on hand for unforeseen expenses or emergencies. Credit lines provide a lifeline by letting you access the unused amount of your credit limit. With its help, short-term financial demands can be met quickly and effectively without turning to expensive loans.

4. Combining EMIs to improve cash flow control: Consider reviewing lenders who provide EMI consolidation when thinking about credit lines. Managing multiple EMIs leads to multiple recurring EMIs which could turn out to be a nightmare in terms of cash flow management. However, choosing a lender who aggregates these instalments simplifies your money management, facilitating the creation of monthly budgets and helping you create strategic financial planning.

5. Selecting lenders with reducing interest rate models: Choosing lenders who offer a decreasing interest balance is a wise choice. This results in a progressive decrease in the total interest burden over time because interest is only charged on the principal amount that is still owed. This strategy encourages prompt repayments and responsible credit use, which is consistent with sound financial management.

6.Increasing limits through timely payments: A consistent track record of clearing your dues before the due date may also lead to the lenders increasing your existing credit line limits. Timely repayments not only help you to increase your credit eligibility but also help in lowering your interest rates. Hence, it is ideal for you to choose a lender who recognises your good financial habits and rewards you with an increased borrowing limit and a reduced interest rate.

A properly managed credit line may be a valuable ally in your financial journey, helping with everything from emergency finance to optimising interest rates and enabling improved cash flow management. You can enhance your financial flexibility and move closer to reaching your long-term financial goals by being aware of and making use of the several options that lenders provide.

(The writer is Founder of Zype)