Line of Credit

A line of credit (LOC) is an amount of money that can be borrowed in advance and used as needed. A borrower may make any number of withdrawals as needed up until the limit has been reached. When a credit line is open, money can be loaned again as it is reimbursed.

A LOC is an agreement that sets the maximum amount of the loan that a customer can borrow between a financial institution—typically a bank—and the consumer. The highest limit (or credit limit) stipulated in the agreement may never be exceeded by the borrower while drawing money from the LOC.

Every LOC has a fixed sum of money in it that can be borrowed as needed, repaid, and repeated. The lender determines the rate of interest, the size of installments, and other guidelines. While some LOCs feature a form of credit or debit card, others let you issue checks (or draughts). Unsecured LOCs often have higher interest rates than secured LOCs (which are supported by collateral).

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