Line of Credit
A line of credit is a borrowing arrangement that lets you draw money up to an approved limit instead of receiving the full amount at once. Interest is generally charged on the amount you actually borrow, subject to the lender’s terms.
Reviewed September 2026
How a line of credit works
The lender sets a credit limit. You can borrow some or all of the available amount, repay it, and—if the line is revolving—borrow again. Rates may be variable, and fees or minimum-payment rules can apply.
Simple example
Suppose you have a $20,000 line of credit and use $4,000 for an unexpected expense. You generally pay interest on the $4,000 balance rather than the entire $20,000 limit. As you repay the balance, available credit may increase again.
Line of credit vs. loan
A traditional installment loan normally gives you a fixed amount upfront and has a set repayment schedule. A line of credit is more flexible because you draw funds as needed, but that flexibility can also make it easier to carry debt for a long time.
Secured vs. unsecured
Some lines of credit are backed by collateral, while others are unsecured. Secured credit may have different rates and risks because the lender has a claim on the pledged asset if the borrower does not repay.