A line of credit (or credit line) is a type of credit given to a client for a predefined period. The amount can be anywhere from a petty $20 to a home loan of $20,000. The client may withdraw the entire amount at once or make a number of withdrawals during the given period. A contract or a promissory note is usually exchanged between the client and the lender. The contract or the note states that both parties agree to the amount of credit line, the specified period and the annual interest that the lender should receive at the end of the term.

It is not just international sellers who can use this service. Some banks also offer this to individuals who need an economical loan.

Everyone would love to have a loan that is economical but flexible. If you’re the type who needs to borrow money frequently, a line of credit may be exactly what you need. Some lenders can offer you this service with a fixed maximum of loan you can withdraw. Given this credit ceiling, you gain a sense of control over just how much you borrow, and flexibility in choosing when and how often to withdraw. You can also take out those funds whenever you need to.

A line of credit can be taken against your home. The credit limit depends largely on the equity of your home. Generally, lenders set the limit by adopting a percentage. Your bank may offer you 70 percent of the appraised value of your home less the balance owed on the existing mortgage. But before your bank or lender sets the limit, many factors are assessed including your income, repayment ability, debts and other financial obligations.

Securing a line of credit against your home gives you a sort of cheap loan with the flexibility that ordinary loans do not provide. The maximum period over which you are allowed to withdraw money is known as the “draw period.” A draw period for a home equity line of credit may be five years, 10 years or even longer. If the period expires, the bank may or may not renew the credit line. It is all up to the lender.