Letter of Credit Vs. Line of Credit
Letter of Credit Vs. The line of Credit
Letter of credit and the line of credit both are different in terms of purpose and structure both. A line of credit is a schedule that remains to continue until the time when the monthly payments have been made.
Whereas the letter of credit is the guarantee payment of the borrower in the single transactions of the two businesses.
The line of Credit
A line of credit is one type of loan that is from a lender or a financial institution. The loan is either taken by the business or the individual that funds up to the limit. The line of credit is secured because the borrower gives something of his assets as collateral.
The buyers has to pay a high rate of interest on monthly payments until the time loan is completely paid off. The structure of the line of credit is to maintain the debt balance that is present on the credit card. The line of credit is used by the businesses and by the individuals as well. That is to cover the income from one month to another month.
Individual use One common type of line of credit is for the individuals. They take their home or the car as collateral because they want a backup and less risk in lending the money.
Business use The other common line of credit is for the businesses that fund the money to purchase the material for the business from the ventures. They buy products to manufacture new products.
Letter of Credit
The letter of credit is different from the line of credit because it guarantees the payment will be paid from the financial institution to the seller of goods or the services. They are more used for making the domestic deals. The documentations are used for the transaction of the companies.
A letter of credit provides a guarantee of payment from a financial institution to a seller of goods or services. The letter of credit is in between the seller/beneficiary, the buyer, and the bank that has guaranteed payment. The fourth party can be the advisory bank in some cases.