Revocable Line Of Credit

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DEFINITION

A source of credit provided to an individual or business by a bank or financial institution, which can be revoked or annulled at the lender's discretion or under specific circumstances. A bank or financial institution may revoke a line of credit if the customer's financial circumstances deteriorate markedly, or if market conditions turn so adverse as to warrant revocation, such as in the aftermath of the 2008 global credit crisis. A revocable line of credit can be unsecured or secured, with the former generally carrying a higher rate of interest than the latter.

INVESTOPEDIA EXPLAINS

Notwithstanding its revocable nature, such a line of credit offers a bank's clients financial flexibility since interest is paid only on the actual amount of funds drawn down. Another attractive feature of this line of credit is its revolving nature, with the full amount being available to the client once all advances under it have been repaid.


Home Equity Lines of Credit (HELOCs) were very popular in North America during the real estate boom of 2002-06. However, as housing prices collapsed and homeowners' equity shrank drastically, some lenders increasingly resorted to reductions and revocations of such credit facilities.




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