Line of Credit
Direct definition
A line of credit is a flexible borrowing arrangement that lets a borrower draw funds up to an approved limit and repay over time, rather than receiving a lump sum.
Written by the Vabasso Mortgage Editorial Team · Reviewed against agency and federal sources · Read our editorial policy for how we research and review mortgage content
Plain-English explanation
Unlike a traditional installment loan, a line of credit allows borrowing, repaying, and re-borrowing during a draw period, with interest typically charged only on the amount actually used.
Why it matters
This flexibility can suit ongoing or unpredictable expenses, like renovations completed in stages, but variable rates on many lines of credit mean payments can fluctuate.
Where you may see it
- HELOC agreements
- Home equity line disclosures
- Draw period statements
A real-world example
Educational and illustrative only
A common misunderstanding
A line of credit is not the same as receiving the full approved amount upfront; funds are typically drawn as needed.
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- Author
- Vabasso Mortgage Editorial Team
- Reviewed by
- Vabasso Mortgage Licensed Advisory Team
- Last reviewed
- July 30, 2026