How To Calculate The Monthly Interest Rate For Line Of Credit Loan

With the advent of the Line Of Credit (LOC), people started choosing this instant cash loan over the traditional bank loans for many reasons. In today’s time, LOC is one of the most common means to get a quick loan and a plethora of common people are choosing it. Line Of Credit is more or less the similar to the credit card category of loan which millions of people opt to meet the monthly needs.

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Onto the description, one can end up calling LOC as flexible funds which can be used for pretty much every financial requirement like home renovations, vehicle purchases, daily spending or consolidating debt. There are certain pros when it comes to LOC.

In case of LOC, you will borrow those amounts which are must and will only pay interest for the same whereas the case is different with the credit card and bank loans. These user-friendly features make a line of credit a good choice for short-term borrowing.

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Many wonder how the total interest rate is calculated, coming to this, there is no formula for the monthly payment amount. The lender determines payment size based on factors such as the interest rate, outstanding balance and terms of the line of credit. However, the calculation is generally done using the average daily balance method. The lender figures the average amount during a billing period and charges interest that is a proportion of the annual interest calculated based on the tenure in the billing period in total.

For an instance, let us consider that the lender has come up with the annual rate of 7.2 percent and there are 30 days in the billing period, you have 7.2 percent divided by 365 and then multiplied by 30 (to calculate the interest for the billing period).

Now, the interest percentage on the total amount taken is equal to 0.59. The borrower must pay the total sum taken along with the interest i.e; 0.59 percentage of the amount in the given time.

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