A
line of credit is
credit source extended to a government, business or
individual by a
bank or other
financial institution. A line of credit may take several forms, such as
overdraft protection, demand
loan, special purpose,
export packing credit, term loan, discounting, purchase of commercial bills, traditional
revolving credit card account, etc. It is effectively a source of funds that can readily be tapped at the borrower's discretion.
Interest is paid only on money actually withdrawn. (However, the borrower may be required to pay an
unused line fee, often an annualized percentage fee on the money not withdrawn.) Lines of credit can be secured by
collateral, or may be unsecured.