Credit Line
A flexible borrowing arrangement allowing the borrower to draw and repay funds up to a preset limit repeatedly.
What is Credit Line?
A credit line, or line of credit, is a revolving borrowing facility that allows the borrower to draw funds up to a predetermined credit limit, repay the balance, and borrow again as needed. Unlike an installment loan with a fixed disbursement and repayment schedule, a credit line is flexible—the borrower only pays interest on the outstanding balance drawn, not the full credit limit. Credit lines exist in several forms: home equity lines of credit (HELOCs) secured by real estate equity, unsecured personal lines of credit, business revolving credit facilities, and bank credit lines. The lender sets the credit limit based on the borrower's creditworthiness, income, and collateral value for secured lines. Credit lines are commonly used to manage cash flow, cover unexpected expenses, or fund projects where costs accrue gradually over time.
Example
A small business owner with a $100,000 revolving credit line at 8% APR draws $30,000 in March to cover payroll during a slow season. Interest-only payments of approximately $200 per month accrue for two months. In May, after receiving a large client payment, the owner repays the full $30,000, restoring the entire $100,000 credit line for future use.
Source: Investopedia — Line of Credit