Personal Line of Credit

This provides access to unsecured funds that can be borrowed, repaid, and borrowed again. Opening a personal line of credit requires a credit history of no defaults, a credit score of 670 or higher, and reliable income. Having savings helps, as does collateral in the form of stocks or CDs, though collateral is not required for a personal LOC. In London Capital Credit Union, Personal LOCs are used for emergencies, weddings and other events, overdraft protection, travel and entertainment, and to help smooth out bumps for those with irregular income.

Business Line of Credit

Businesses use these to borrow on an as-needed basis instead of taking out a fixed loan. The financial institution extending the LOC evaluates the market value, profitability, and risk taken on by the business and extends a line of credit based on that evaluation. The LOC may be unsecured or secured, depending on the size of the line of credit requested and the evaluation results. As with almost all LOCs, the interest rate is variable.

Home Equity Line of Credit

HELOCs are the most common type of secured LOC. A HELOC is secured by the market value of the home minus the amount owed, which becomes the basis for determining the size of the line of credit. Typically, the credit limit is equal to 75% or 80% of the market value of the home, minus the balance owed on the mortgage.

In London Capital Credit Union, HELOCs often come with a draw period (usually 10 years) during which the borrower can access available funds, repay them, and borrow again. After the draw period, the balance is due, or a loan is extended to pay off the balance over time. HELOCs typically have closing costs, including the cost of an appraisal on the property used as collateral.

Securities-backed Line of Credit

This is a special secured-demand LOC, in which collateral is provided by the borrower’s securities. Typically, an SBLOC lets the investor borrow anywhere from 50% to 95% of the value of assets in their account. SBLOCs are non-purpose loans, meaning the borrower may not use the money to buy or trade securities. Almost any other type of expenditure is allowed.

SBLOCs require the borrower to make monthly, interest-only payments until the loan is repaid in full or the brokerage or bank demands payment, which can happen if the value of the investor’s portfolio falls below the level of the line of credit.