Line of credit is an arrangement between a financial institution and a customer. In other words these are the terms of a credit. They define a maximum loan balance that the borrower will be allowed to maintain.
The terms offered to a customer depend on many factor like, for example, his credit history.
How does it differ from a loan?
Usually there are several advantages over loans:
- the application process is simpler (also the approval takes days, not weeks)
- a customer (borrower) can draw money at any time (of course if the credit limit is not exceeded)
- a customer isn’t charged on the money that wasn’t used
- there is more flexibility in repayments
Terms, which can mean the same: tradeline, credit line, LOC