A line of credit is a type of credit facility extended by a bank or other financial institution to a government, business, or individual customer that enables the customer to draw on the facility when they need funds. It is a flexible loan that consists of a defined amount of money that can be accessed as needed and used as desired. The borrower can take money out as needed until the limit is reached, and as the money is repaid, they can borrow up to that limit again.

Here are some key features of a line of credit:

• Credit Limit: The maximum amount of funds a customer is allowed to draw from a line of credit is typically called the credit limit or overdraft limit.

• Types: A line of credit takes several forms, such as an overdraft limit, demand loan, special purpose, export packing credit, term loan, discounting, purchase of commercial bills, traditional revolving credit card account, etc..

• Collateral: Lines of credit can be secured by collateral, or may be unsecured.

• Interest: Interest is paid only on money actually withdrawn. Like a traditional loan, a line of credit requires acceptable credit and repayment of the funds and charges interest.

Lines of credit are often extended by banks, financial institutions, and other licensed consumer lenders to creditworthy customers to address fluctuating cash flow needs of the customer. They are not intended to be used to fund one-time purchases such as houses or cars, though they can be used to acquire items for which a bank might not normally underwrite a loan. Personal lines of credit are sometimes offered by banks in the form of an overdraft protection plan, which keeps the customer from bouncing a check or having a purchase denied.