Definition: What is a Credit Line?

Technically speaking, a credit line is defined as any source of credit that is extended to a borrower by any lending body. 

However, the term credit line is most often used to refer to a special type of lending that banks offer their customers. 

It is essentially a fixed amount of credit that you have access to at any time, similar to a bank account. 

Credit cards in a valetImage source: Pixabay

Accessing Your Credit Line

Like a regular bank account, once you’ve established your credit line, you always have access to it. You can use it or not use it at your discretion. 

Like any other borrowing product, once you’ve tapped into your credit line you will pay interest on the amount that you’ve borrowed until it is repaid in full. 

Credit Line vs. Installment Loan and other Credit Types

Unlike an installment loan, which simply closes out once you’ve paid it off, paying down a line of credit simply restores your full balance of credit so you can access it again in the future if you need to. 

Lines of credit offer certain advantages when compared to other lending products. 

For example, they typically have lower interest rates than credit cards. 

Banks also offer more flexibility when dictating how funds borrowed from your credit line are repaid than when dictating terms of an installment loan repayment.

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