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 New Jersey, 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 disbursed to the borrower and is expected to be 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. The borrower can then repay and re-borrow against the line during the life of the account, which is why it is considered 'revolving'. Interest is typically charged on the amount borrowed, not the entire credit line. 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. New Jersey's regulations on these financial products are consistent with federal laws, such as the Truth in Lending Act (TILA), which requires lenders to disclose terms and costs of credit, and the Equal Credit Opportunity Act (ECOA), which prohibits credit discrimination.