Quick Definition

A line of credit (LOC) is a flexible loan from a bank or financial institution that allows a borrower to draw funds up to a predetermined limit as needed, with interest paid only on the amount used.

Examples

• 1A small business owner uses a LOC to purchase inventory during peak seasons without depleting cash reserves.
• 2A homeowner might use a home equity line of credit (HELOC) to fund home renovations, paying interest only on the funds drawn for the project.
• 3An individual uses a personal LOC to consolidate high-interest credit card debt, taking advantage of lower interest rates offered by the LOC.

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