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Line of Credit
A loan that allows a borrower to access funds up to a pre-approved credit limit, and is only charged interest on the borrowed funds.
More Details
A line of credit is a type of loan that allows a borrower to access a predetermined amount of money, called a credit limit, as needed.
Example
As a borrower with a line of credit, you may have access to a credit limit of $10,000, for example. You can then borrow up to that amount as needed, and you will only be required to pay back the amount that you have actually borrowed, plus any applicable interest. The lender will typically set a repayment period for the line of credit, and you will be required to make regular payments to pay back the borrowed amount. A line of credit may be useful if you need access to a flexible source of funds for a variety of purposes, such as covering unexpected expenses or making investments.
Related Terms
Compound Interest
Interest calculated on the sum of a principal and accumulated interest from previous periods.
Deferment Period
A specified time during which loan payments are temporarily suspended or reduced.
Remittance
A financial transaction in which money is transferred from one person to another, typically to support family members or other loved ones.