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 Minnesota, 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 then repaid with interest over a predetermined period. 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 maximum amount and can draw funds up to that limit as needed. Payments are made on the amount borrowed, and as the balance is paid down, funds 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 established based on personal or business relationships with a bank. Minnesota state statutes and federal laws regulate both loans and lines of credit, including interest rates, lending practices, and consumer protections. It's important for borrowers to understand the terms and conditions, as well as their rights and responsibilities under the agreement with their financial institution.