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 Tennessee, 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 must be repaid over a set period, with interest, according to the terms of the loan agreement. 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 limits. Interest is typically charged on the amount borrowed, not the entire credit line available. Lines of credit can be secured or unsecured and are often used for business operations or personal finance management. The specific terms and conditions of lines of credit, including interest rates and repayment terms, are governed by the agreement between the borrower and the financial institution, and must comply with applicable state and federal laws, including the Tennessee Consumer Protection Act and the Truth in Lending Act at the federal level, which require clear disclosure of credit terms and consumer rights.