line of credit

noun phrase
Updated on: 15 Nov 2017

Definition of line of credit

: the maximum credit allowed a buyer or borrower; also : an agreement providing credit up to a certain amount

First Known Use of line of credit

1917


Financial Definition of LINE OF CREDIT

line of credit

What It Is

A line of credit (LOC) is an arranged amount of standing credit that a bank's customer may draw upon at any time.

How It Works

A line of credit can also be referred to as revolving credit.

An LOC is a standing amount of money, similar to a loan, that a bank extends to a customer. A customer may draw upon the available line of credit, provided that the amount does not exceed the limit. Money borrowed on the line of credit must be paid back within a specified timeframe, at a specified interest rate. Unlike a loan, however, only the money actually drawn (or used) on a line of credit is charged interest. For instance, if someone has a $20k line of credit from his bank, but draws only $5k, he will be changed interest on only the $5k.

Why It Matters

An LOC can be a convenient source of funds in an emergency. It is advisable to explore other borrowing options as lines of credit are unsecured, meaning that the interest rate charged varies with movements in banks rates. This can result in the borrower paying very high interest relative to the amount borrowed.


Law Dictionary

line of credit

legal Definition of line of credit

: an agreement specifying the maximum amount of credit allowed a borrower

Learn More about line of credit


Seen and Heard

What made you want to look up line of credit? Please tell us where you read or heard it (including the quote, if possible).

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!

WORD OF THE DAY

sticky or viscid

Get Word of the Day daily email!

Test Your Vocabulary

Find the Cousins

  • a-large-tree-with-many-branches
  • Which pair shares a common word ancestor?
Spell It

Can you spell these 10 commonly misspelled words?

TAKE THE QUIZ
Citation

Test Your Knowledge - and learn some interesting things along the way.

TAKE THE QUIZ

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!