Line of credit is a type of revolving credit that provides borrowers with access to a specific amount of funds that they can draw from as needed, up to a predetermined limit. Similar to a credit card, a line of credit allows borrowers to borrow money as needed and make payments only on the amount borrowed.
Lines of credit can be secured or unsecured. A secured line of credit requires the borrower to put up collateral, such as a home or other asset, to guarantee the loan. An unsecured line of credit does not require collateral but typically comes with higher interest rates and stricter borrowing requirements.
Lines of credit can be useful for individuals or businesses that need flexible access to funds for short-term expenses, such as unexpected bills or seasonal fluctuations in cash flow. They can also be used to finance ongoing projects or investments.
Interest is charged only on the amount borrowed, and borrowers can draw on the line of credit as needed up to the predetermined limit. Repayment terms vary depending on the lender and the type of line of credit, but typically require regular payments of interest and principal, with the option to pay off the balance in full at any time.
