What Is a Credit Facility

There are many definitions of credit facility. It is commonly known as a loan, which is taken from a financial institution and a person who is in need of the credit. Credit facilities consist of different types of credit that ranges from revolving credit to a credit that is used as a backup for the company. When a person asks for a credit from the bank, he should pledge immovable property to the bank in the form of collateral. This is a mandatory in all the banks, unless it is a small amount. There are various types of credit facilities, which the banks provide. This article will discuss about these facilities.

  • Credit card- this is a device, which the bank issues to its account holder. The cardholder can use this card to make credit purchases from shopping. At the end of every month, the cardholder has to pay the bill, which he has accumulated with the use of the credit card. The car holder has the advantage of paying this amount in installments. He will have to pay interest on the amount unpaid by him. However, he should pledge collateral to get a credit card based on which his card limit will be set.
  • Bank overdraft- this is a type of credit facility, which only the current account holder can take. When the person has a current account in the bank, he has the right to withdraw a few extra thousands exceeding the balance in his account. For this amount exceeding the balance in his account, he should pay interest as per the interest rate that the bank charges.
  • Payday loans- this is one of the popular credit facilities, which is being used by many people today. As the name suggests, this is a loan, which is given to you based on your salary. However, you should repay the loan to the institution on the day that you receive you pay from your employer. This is a loan, which does not require you to pledge any collateral and thus, is easily available to all. They do not even ask for any credit background, which is why the high rate of interest.

However, any bank, which provides loans, will ask you for your credit background. The interest rate on which the loan is given will depend upon the credit background. If you have a good background, which is free of all problems, the interest rate will be low. Else, the interest rate will be high. Thus, you should keep all these documents ready while applying for a loan.

Credit facility is flexible in nature. It is not necessary that the facility is just used according to business wants but you can use this facility wherever the funds are required.