Bank credit is a credit instrument that can be requested from one’s bank, usually when one has to face an overdraft on the current account. The credit line can be confused as one of the many loans that are provided by credit institutions, but in reality its characteristics are different. How does a credit line function?
First of all, it must be specified that the credit line can be granted both to private bank customers and to legal entities such as companies. The condition shared by the two situations is that the client has opened a current account with the Bank This of course only if the exposure is required following an encroachment of account (overdraft).
There are also other possibilities to apply for this form of credit, but the overdraft is the most common possibility.
This operation provides for the opening in favor of the customer of a credit line on his account: this means that, even if the account is in red and there are no resources available, it will be possible for the saver to carry out some operations, such as sending wire transfers or pay bills, within the limits set by the bank at the time of signing the contract. In fact, the institution will set a maximum ceiling above which the client will not be able to obtain additional liquidity. This additional economic availability can be granted for a fixed time, within which the credit line will have to be repaid, or undetermined, without the contract specifying a deadline. However, we must not get confused: even with a credit with an undetermined maturity, the money will be repaid, with interest.
The credit line in fact provides for costs , identifiable in the preliminary investigation costs and in the interests
Given the particular exposure of the bank, the interest rate can also be very substantial and be calculated on very short time frames, on a monthly or even weekly basis. To lower the rate, it is preferable that our economic and financial situation, controlled by the bank before granting the loan, is solid.
Another possibility offered by some banks is the bank loan with a pledge : unlike other forms of small loans, where the guarantee can be made up of valuables, in the case of exposures it is also possible to use financial securities, such as some shares and bonds. Considering that often the bank offers these products to its customers, we must also consider the opportunity to use them, very carefully, as guarantees.