Line Of Credit - LOC

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DEFINITION of 'Line Of Credit - LOC'

An arrangement between a financial institution, usually a bank, and a customer that establishes a maximum loan balance that the bank will permit the borrower to maintain. The borrower can draw down on the line of credit at any time, as long as he or she does not exceed the maximum set in the agreement.

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BREAKING DOWN 'Line Of Credit - LOC'

The advantage of a line of credit over a regular loan is that interest is not usually charged on the part of the line of credit that is unused, and the borrower can draw on the line of credit at any time that he or she needs to. Depending on the agreement with the financial institution, the line of credit may be classified as a demand loan, which means that any outstanding balance will have to be paid immediately at the financial institution's request.

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RELATED FAQS
  1. What is the difference between a drawdown in banking and a drawdown in trading?

    The term "drawdown" appears in both the banking world and in the arena of trading, but it has completely different meanings ... Read Full Answer >>
  2. How do commercial banks make money?

    Commercial banks make money by providing loans and earning interest income from those loans. Customer deposits, such as checking ... Read Full Answer >>
  3. What information do lenders need when I apply for a credit limit increase?

    Depending on the credit increase amount that is requested and the length of time the borrower has held the line of credit, ... Read Full Answer >>
  4. How is my credit score calculated?

    The credit score, commonly referred to as a FICO score, is a proprietary tool created by the Fair Isaac Corporation. This ... Read Full Answer >>
  5. What is the difference between "closed end credit" and a "line of credit?"

    Depending on the need, an individual or business may take out a form of credit that is either open- or closed-ended. While ... Read Full Answer >>
  6. What are typical forms of long-term debt for a public company?

    Public companies fund their operational needs and capital expenditures with equity or debt. Most often, companies choose ... Read Full Answer >>

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