What Is an Evergreen Loan?
Let me explain what an evergreen loan is directly to you: it's a loan where you don't have to repay the principal during the loan's life or for a set period. Instead, you only make interest payments. These loans often come as a line of credit that you pay down continuously, so you always have funds available for purchases. You might hear them called 'standing' or 'revolving' loans.
Key Takeaways on Evergreen Loans
Here's what you need to know: an evergreen loan is an interest-only loan that defers principal payments. You typically repay the principal only at the end of the term, though you might face higher interest rates or penalties for delays. They're termed 'evergreen' because you can pay interest and effectively delay principal repayment indefinitely, making it similar to revolving credit.
How an Evergreen Loan Works
Evergreen loans come in various forms through different banking products. Think of credit cards and checking account overdrafts as prime examples offered by lenders. They're convenient because they revolve—you don't reapply each time you need money. Both consumers and businesses use them. In contrast, non-revolving credit gives you a lump sum upfront, and you pay it back in scheduled amounts until it's gone, closing the account afterward. Remember, evergreen loans give you financial flexibility, but you must handle regular minimum payments.
How Businesses and Consumers Use Evergreen Loans
When you're looking to borrow, you can pick revolving or non-revolving options. Revolving credit, like evergreen loans, provides an open line you can draw from as long as you're in good standing with the lender. It often means lower monthly payments than non-revolving credit. Lenders send you a monthly statement with the minimum payment required to keep your account current.
Examples of Evergreen Loans
Credit cards are a classic evergreen loan. They're issued by banks or other companies, even if you don't have other accounts with them. You apply based on your credit score and profile—lenders pull a hard inquiry from a credit bureau to decide. If approved, you get a borrowing limit and a card for transactions up to that limit. You pay down the balance monthly with at least the minimum, covering principal and interest, which frees up more credit. Another example is an overdraft line tied to your checking account. You apply similarly, and if approved, you might get up to $1,000 limit. It covers overdrafts by pulling funds automatically, or you can take cash advances. You'll get monthly statements showing your balance and minimum payment—pay it to stay in good standing.
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