Line of credit - Financial definition

In finance, a line of credit, also known as a credit line, provides borrowers with access to funds up to a predetermined limit, which they can draw upon as needed. Unlike traditional loans, where the entire amount is disbursed upfront, a line of credit offers flexibility, allowing borrowers to withdraw funds intermittently and repay them as per their convenience, often with variable interest rates.

Common examples include personal lines of credit for individuals and revolving credit facilities for businesses, which serve as safety nets for unforeseen expenses or as working capital to manage cash flow fluctuations. These credit facilities are subject to terms and conditions negotiated between the borrower and the lender, including interest rates, repayment schedules, and collateral requirements.