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Low Interest Line of Credit

Getting a low interest line of credit can save a business hundreds or even thousands of dollars a year on credit costs.

The interest rate is the charge that a business pays for using credit. Lenders charge interest because it is how they make money when issuing a line of credit. The interest rate determines the cost of the line of credit to the borrower.

A business should try to get a low interest line of credit because interest increases the amount of money owed. Whenever a line of credit balance goes unpaid the lender charges interest on it and the amount of the interest is added to the balance. This means that a low interest rate on a line of credit can keep the balance from rising.

How to Get a Low Interest Line of Credit 

The way to find a low interest line of credit is to shop around for one.  There are hundreds of lenders out there and many of them provide low interest lines of credit.

A good way to shop for a low interest line of credit is to take advantage of the line of credit calculators found online. There are many websites that allow borrowers to compare line of credit offers from several different lenders at once using a tool called a calculator. Using these calculators can show a business what the lowest interest rate is.

Another good rule of thumb to remember is that equity and real estate lines of credit usually have lower interest rates than other lines of credit. Bank lines of credit on checking accounts often start 12% while credit cards can up with interest rates of 20% or more. Real-estate equity line-of-credit interest rates can be well below 10%. This means that real estate equity lines of credit are usually the cheapest available.

Factors that Help a Borrower Get a Low Interest Line of Credit

There are some other factors that can make line of credit interest higher. Usually a business’s credit rating is the biggest factor in determining a line of credit interest rate.

Most lenders will charge lenders with a poor or bad credit rating a higher interest rate. This means that businesses should try to maintain good credit. A good credit rating can save a business several thousand dollars a year in interest charges.

Income can also affect the interest rate on a line of credit. Banks, hard money lenders and cash lenders will often give businesses that can demonstrate higher income or cash flow a lower interest rate. Many lenders will give businesses that refuse to undergo income verification a higher rate of interest.

Some banks will lower the interest rate on lines of credit if a business runs a large amount of money through its accounts. Many lenders will also lower interest rates if businesses pay off lines of credit balances quickly.

Start up businesses and businesses that lenders consider speculative may have to pay higher rates of interest. Lenders charge a higher rate of interest on lines of credit to these business because they are considered a bigger risk.

Ask for a Lower Interest Rate

A business should never be afraid to ask for a lower interest rate on a line of credit. If the interest rate on an existing line of credit the business should ask for a lower interest rate. Lenders want business so they might lower an interest rate to keep a client’s business. Especially if the client has a good history of paying off its line of credit balances.