- line of credit extended to a business; a credit facility that is good for a stated period of time, but does not have a fixed repayment schedule. The borrower may draw down the line at any time, or repay it in full without penalty. The borrower usually pays a commitment fee that secures the line of credit when the application is taken by the lender. Contrast with evergreen loan.
- credit card, checking account cash reserve, or other consumer credit arrangement that gives consumers the option of borrowing against a pre-approved line of credit. There is no charge when the account is not used. When used, the borrower pays a finance charge on outstanding balances, as stated in the credit agreement or credit contract. Afinance charge of 1.5% per month, for example, is equal to an Annual Percentage Rate of 18%. A monthly rate of 1.65% equals 19.8% APR. In credit card plans, there are several methods of computing finance charges. The most common is the average daily balance method, in which the interest rate is calculated on the daily average of the previous month. Another is the previous balance method. Revolving check credit plans are written like checks, but draw funds from a bank card account. Check credit and checking account cash reserve advances begin accruing interest payable from the date of the transaction (unlike credit cards, where billing on new charges ordinarily is deferred during a grace period of 15 to 25 days) and are payable in the next billing cycle. See also Regulation Z.
- in commercial banking, contractual agreement between a bank and its customer, whereby the bank agrees to make loans up to a specified maximum for a specified period. As the borrower repays a portion of the loan, an amount equal to the repayment can be borrowed again under the terms of the agreement.
- in consumer banking, loan account requiring monthly payments of less than the full amount due. The balance carried forward is subject to a financial charge.
Commercial banking: contractual agreement between a bank and its customer, usually a company, whereby the bank agrees to make loans up to a specified maximum for a specified period, usually a year or more. As the borrower repays a portion of the loan, an amount equal to the repayment can be borrowed again under the terms of the agreement. In addition to interest borne by notes, the bank charges a fee for the commitment to hold the funds available. A compensating balance may be required in addition.
Consumer banking: loan account requiring monthly payments of less than the full amount due, and the balance carried forward is subject to a financial charge. Also, an arrangement whereby borrowings are permitted up to a specified limit and for a specified period, usually a year, with a fee charged for the commitment. Also called open-end credit or revolving line of credit.
