What is a line of credit?

A line of credit is a flexible loan option that allows borrowers to access funds up to a predetermined limit as needed. This means that rather than receiving a lump sum of money upfront, borrowers can withdraw amounts according to their financial needs, similar to a credit card. Once the borrower pays off the amount borrowed, they can usually withdraw again, making it a versatile financial tool for managing cash flow or unexpected expenses. Lines of credit are often used by individuals for personal expenses or by businesses for operational costs, allowing for flexibility in financing without accumulating interest on unused funds until they are drawn upon.

In contrast, the other options describe different financial products or arrangements that do not embody the features of a line of credit. Fixed loans generally require a specific purpose and do not allow for flexible access to funds. Government grants are typically non-repayable and not loans at all, while long-term mortgages are specific to real estate and involve set payment structures over extended periods.