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 Michigan, as in other states, a line of credit and a loan are distinct financial products. A loan is a lump sum of money that is borrowed and meant to be repaid over a set period with a fixed or variable interest rate, often with regular monthly payments. Once the loan is paid off, the agreement ends. In contrast, a line of credit is a flexible borrowing option where the borrower is approved for a certain amount of credit and can withdraw funds up to that maximum limit as needed. Payments on a line of credit are based only on the amount of money that has been borrowed, and as funds are repaid, they become available to borrow again. This revolving nature makes it similar to a credit card. Lines of credit can be secured or unsecured and are often offered by local banks, with terms based on the borrower's personal or business relationship with the bank. Michigan state statutes and federal laws regulate both loans and lines of credit, ensuring consumer protection and fair lending practices. It's important for borrowers to understand the terms and conditions, interest rates, fees, and repayment requirements associated with each type of credit before entering into an agreement.