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What Is a Line of Credit (LOC)?

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on May 11, 2022

What Is a Line of Credit?

A Line of Credit, or LOC, is money lent to an individual or business which the borrower pays interest on.

Depending on the type of LOC, the client either receives a lump sum, or is allowed to “draw against” their line of credit to make purchases, until the credit limit is reached.

Typically lines of credit are given by banks, such as when an individual is issued a credit card.

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What Is a Line of Credit and How Does it Work? Revolving vs Non-Revolving

Lines of credit will either remain open, or will close, once the loan has been repaid.

Revolving lines of credit are considered “revolving”because an individual’s credit is replenished when some or all of the outstanding debt has been paid off.

In contrast, a non-revolving line of credit is closed once the account is fully paid off, such as a student loan or mortgage.

Non-revolving credit usually has a lower interest rate.

How does a Line of Credit Work? Secured vs Unsecured

Loans may be unsecured loans, or secured by collateral.

A home equity loan is an example of a collateralized loan, whereby the home is the collateral and will be claimed by the creditor in the event of a default on the loan.

Credit card loans are almost always unsecured, which causes creditors to take on more risk and is why credit card interest rates are generally higher and the borrowing limits are generally lower than secured loans.

Using Credit Lines More Responsibly

While a high line of credit can be an indicator of a business’ ability to pay, it is important to be cautious about its risks, too. Learn how you can be more responsible with your credit line by connecting to a financial advisor in Terre Haute, IN. If you live outside the area, please feel free to browse through our financial advisor page instead.

Understanding a Credit Line FAQs

LOC is an acronym for Line of Credit.
A Line of Credit, or LOC, is money lent to an individual or business which the borrower pays interest on.
Depending on the type of LOC, the client either receives a lump sum or is allowed to “draw against” their line of credit to make purchases until the credit limit is reached.
Typically lines of credit are given by banks, such as when an individual is issued a credit card.
Revolving lines of credit are considered “revolving” because an individual’s credit is replenished when some or all of the outstanding debt has been paid off. In contrast, a non-revolving line of credit is closed once the account is fully paid off, such as a student loan or mortgage.

Line of Credit (LOC) Subtopics

True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, or check out his speaker profile on the CFA Institute website.