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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 Rhode Island, 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 repay the principal with interest over a set period. Once repaid, 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 repay and re-borrow funds within the line of credit's terms. Interest is typically charged on the amount borrowed, not the entire credit line. Lines of credit can be secured or unsecured and are often used for ongoing expenses or as a safety net. In Rhode Island, banks and other financial institutions offer lines of credit based on personal or business relationships, and these are regulated under state statutes and federal laws that govern lending practices, interest rates, and consumer protection.

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Creditor / Debtor

line of credit

Individual & Family Legal Plan

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Rhode-Island State Code

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Creditor / Debtor

line of credit

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