A line of credit is different from a loan in that a loan is a fixed sum of money repaid over a fixed term (period of time), and a line of credit is a revolving account a creditor can borrow against, withdrawing funds up to the maximum amount of the line of credit, and paying-down the line of credit at any time, with the balance fluctuating over time. Thus, a line of credit is more similar to a credit card account, but is usually provided by a local bank based on the debtor’s personal or business relationship with the bank.
In Texas, a line of credit and a loan are distinct financial products governed by different regulations. A loan in Texas is a lump sum of money provided to a borrower with an agreement to repay the principal with interest over a predetermined period. This is typically subject to state usury laws, which cap the interest rates lenders can charge. On the other hand, a line of credit is a flexible financing option that allows a borrower to draw funds up to a certain limit and repay them, often with interest, at their convenience. The balance can go up or down over time, similar to a credit card. Lines of credit can be secured or unsecured and may be offered by banks based on personal or business relationships. The Texas Finance Code regulates both loans and lines of credit, and banks offering these products must comply with state regulations, including licensing requirements, consumer protection laws, and disclosure mandates. It's important for consumers to understand the terms and conditions of any credit product they are considering, including fees, interest rates, repayment terms, and the implications of default.
