Loan and Credit Facilities FAQs
What is a credit facility?
A type of loan, the credit facility allows businesses to borrow money over a period of time. With a credit facility, the borrower does not have to reapply for credit. A Credit Card is an example of a credit facility where credit card holders receive a credit limit. Cardholders can use a portion of the credit limit whenever they require without having to apply for a fresh credit limit. Besides Credit Card, credit facilities also include revolving loan facilities, letters of credits and committed facilities.
What is difference between loans and credit facilities?
A Loan is a financial product that allows you to borrow a fixed amount of money which is to be repaid along with interest within the prespecified tenure. Banks charge interest on the entire borrowed funds. You can pledge collateral to avail of a secured loan like a Home Loan, Loan Against Gold, Loan Against Securities, etc., or unsecured loans like a Personal Loan where collateral is not required.
A credit facility allows you to access an amount of money when you can use funds when you require. With a credit facility, interest is only paid on the amount used. Typically, credit facilities are unsecured debts where you are not required to pledge security.
Reference:
https://www.imf.org/en/About/Factsheets/Sheets/2023/Stand-by-Credit-Facility-SCF
