line of credit

noun phrase

Definition of line of credit

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

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Last Updated

12 Sep 2019

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Time Traveler for line of credit

The first known use of line of credit was in 1917

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line of credit

Financial Definition of 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.

Source: Investing Answers

line of credit

noun