Its flexibility and low rate of interest are two reasons for its tremendous popularity. Once the LOC is established, drawing against it or repaying the advance when it is no longer needed is simple. A LOC may be purchased or collateralized. When a purchased line of credit is accessed, the borrowing costs are 50 bp more than the Fed Funds Effective rate. Term Loans Members wishing to borrow money for short or long terms may choose a term loan from the Corporate Central.
Members also can take advantage of term loans to manage their interest rate risk.
Term loans require no commitment fees. The interest rate on term loans is fixed and will usually be 30-50 bp more than the Treasury yield for that maturity. When a credit union does not often rely on borrowed funds, a LOC may be a relatively expensive option. In addition, a LOC may not be the best solution due to the administrative work required for the credit union. These member credit unions can still use the Corporate Central to adjust for liquidity needs as they arise.