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line of credit
Definition of line of credit
: the maximum credit allowed a buyer or borrower; also : an agreement providing credit up to a certain amount
Indulge Your Inner Word Nerd
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
: an agreement specifying the maximum amount of credit allowed a borrower
Learn More about line of credit
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See words that rhyme with line of credit Britannica.com: Encyclopedia article about line of credit
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