A Line of credit definition; A line of credit is a type of loan product offered by most banks, and is typically provided against the security of a piece of real estate.

It can be used in many ways;

As a very flexible form of home loan. (Line Of Credit Loans – pros and cons)
As a business loan (Should you have a line of credit in your business)
As an investment loan structure (Investing with a Line of credit loan)

A line of credit facility will have a maximum limit, and while the terms and conditions of the individual banks will vary, the intention of the loan is that the only requirement the borrower has is to keep the balance below that limit.

As such lets say for example Mr and Mrs Jones-Smith have a line of credit loan with a limit of $300000.00. They have drawn down $100000.00 of their loan, which leaves $200000.00 as an available balance that can be drawn as and when they choose.

Under the definition of a line of credit, they will not have to make a repayment to the bank at all until such time as the interest accrues on the loan to the extent that the balance becomes $300000.00. At that point in time The Jones-Smith’s will need to make payments equal to the current interest on $300000.00 to keep the loan under their limit.

NOTE; This is a definition of a line of credit, not a statement of individual banks terms and conditions. Some banks do have conditions that require minimum repayments to be made dependent upon what the balance of the loan is.

In effect the definition of a line of credit has many similarities to that of both an overdraft facility for businesses or a credit card.

Should you have any questions you would like clarified feel free to contact me at 4steveroberts@gmail.com.