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 Pennsylvania, as in other states, a line of credit and a loan are distinct financial products. A loan is a lump sum of money provided by a lender to a borrower with an agreement to pay back the principal with interest over a set 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 funds within the line of credit's terms. This arrangement is indeed similar to a credit card, where the available credit replenishes as payments are made. Lines of credit can be secured or unsecured and are often established based on personal or business relationships with a bank. Pennsylvania state statutes and federal laws regulate both loans and lines of credit, ensuring disclosures, fair lending practices, and consumer protections are adhered to by financial institutions.