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Creditor / Debtor

line of credit

A line of credit is different from a loan in that a loan is a fixed sum of money repaid over a fixed term (period of time), and a line of credit is a revolving account a creditor can borrow against, withdrawing funds up to the maximum amount of the line of credit, and paying-down the line of credit at any time, with the balance fluctuating over time. Thus, a line of credit is more similar to a credit card account, but is usually provided by a local bank based on the debtor’s personal or business relationship with the bank.

In California, a line of credit and a loan are distinct financial products. A loan is a specific amount of money borrowed that must be repaid over a set period, often with interest, according to the terms of the loan agreement. In contrast, a line of credit is a flexible borrowing option where the borrower is approved for a maximum amount and can draw funds up to that limit as needed. The borrower can repay and re-borrow funds within the line of credit's terms, which makes it a revolving form of credit. This is akin to how a credit card works, but a line of credit typically comes with a lower interest rate and is often secured by a personal or business relationship with a bank. California's financial regulations ensure that both loans and lines of credit are subject to disclosure requirements and consumer protections under state law and federal regulations such as the Truth in Lending Act (TILA).

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Creditor / Debtor

line of credit

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California State Code

California State Code

Creditor / Debtor

line of credit

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