What is a Line of Credit Calculator?

A line of credit calculator is a tool that is used to determine the amount of credit that a lender can reasonably be expected to extend to a borrower. There are several different types of calculators utilized in various business and investing settings. Some are focused on assisting homeowners in determining the amount of a line of credit that is based on the equity in a home, while others are configured to assist companies in establishing a business line of credit that can be drawn on when and as needed. There are also several versions of the line of credit calculator that brokerages utilize to determine how much credit to extend to an investor who wishes to trade on margin from time to time.

One of the more common examples of this type of financial tool is the equity line of credit calculator. Homeowners who are thinking of taking a second mortgage on their homes often find that this tool is helpful in making the best choice for the additional financing. The object here is to aid homeowners in determining how much equity they currently have in their homes, and decide if going with a home equity line of credit loan (HELOC) would be a better option that taking out a traditional second mortgage.

Taking the time to use a line of credit calculator to determine what type of equity line of credit could be established may be very prudent for the homeowner, especially if there is a significant amount of equity involved. This is because the HELOC essentially works like a credit card, allowing the homeowner to obtain funds when needed, then repay whatever amount is due over time, along with any interest that is generated. In contrast, the second mortgage delivers a lump sum up front and requires monthly payments that must be met. Assuming the results from the line of credit calculator indicate the homeowner can receive a line of credit that will be sufficient for whatever project he or she has in mind, going with the HELOC may be the most workable option.

Businesses sometimes make use of a line of credit calculator to determine the best means of financing a project or possibly consolidating a portion of its overall debt. Both tasks could be managed with a loan or with a line of credit. By working with a financial professional to determine what type of line of credit the business can command, and the rate of interest that would apply to outstanding balances at any given point in time, the business may find that the line of credit is sufficient to manage the task. At the same time, the results from the line of credit calculator may indicate that the credit line approach is flexible enough to allow the business to only use as much of the credit line as it needs before moving on to the next stage of the strategy.