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What is a Cash Line of Credit?

Nicole Madison
By
Updated May 16, 2024
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A cash line of credit is a type of revolving credit line. When a person has one, a bank or other financial institution extends a specific amount of credit from which he can borrow as he pleases. The borrower may draw money from the cash line of credit as often as he needs to, as long as he does not exceed the maximum credit amount set by the financial institution. When he repays the money he withdrew, however, the line of credit is not closed, as would be the case with a basic loan. Instead, the line of credit typically remains open for the borrower to withdraw from in the future.

To understand this concept, it may help to consider an example in which a person has a cash line of credit worth $5,000 US dollars (USD). In such a case, the borrower may first withdraw $2,000 USD to make repairs in his home and then later withdraw $500 USD for car repairs; this means he still has $2,500 USD to use when and how he wishes. When he repays the $500 USD he borrowed, he will have $3,000 USD from which to withdraw. Once he pays the entire amount back, he will have $5,000 USD as his line of credit once more. He usually does not have to repay the money he borrows before he can borrow more, but he does have to follow the borrowing and repayment terms set by his financial institution.

A cash line of credit is often unsecured. This means the borrower doesn’t have to provide any collateral to obtain an unsecured cash line of credit. In some cases, however, a line of credit is secured with some type of collateral. For example, a person may receive a loan against the equity in his house and take a line of credit instead of a lump-sum payment. In such a case, the borrower’s home would be the collateral for the line of credit.

Sometimes people prefer cash lines of credit to traditional loans because of the manner in which interest is handled. With a cash line of credit, a person isn’t charged any interest until he actually uses some of the money in the credit line. Many people also appreciate the fact that cash lines of credit are usable whenever they are needed, without having to reapply or ask the financial institution’s permission.

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Nicole Madison
By Nicole Madison
Nicole Madison's love for learning inspires her work as a SmartCapitalMind writer, where she focuses on topics like homeschooling, parenting, health, science, and business. Her passion for knowledge is evident in the well-researched and informative articles she authors. As a mother of four, Nicole balances work with quality family time activities such as reading, camping, and beach trips.
Discussion Comments
By Sara007 — On Jan 14, 2012

Do you know if there are any good cash loans for a small business that offers a really good interest rate?

My husband and I are thinking about expanding our home business and really want to get some small business financing so that we can make more profit in the future. I know that a lot of business loan rates vary from bank to bank so I would love any suggestions.

We generally want to focus on buying some new equipment to work with and renovating our workspace. We need new computers and cash for more advertising. We can get a good deal on most of what we need if the cash is on hand.

By popcorn — On Jan 13, 2012

@manykitties2 - I would definitely not put your repairs on your credit cards. I am not sure if most people know how bad credit cards are for interest rates but your line of credit is going to give you a much better rate. The thing about refinancing your home is also tricky because you are losing a lot of the equity in your home when you do this.

Your best bet would be to read the fine print on your cash line of credit and see if anything sticks out at you as problematic. Once you feel comfortable sign away and get your repairs done. There is no sense freezing if you can help it.

By manykitties2 — On Jan 12, 2012

My bank recently offered me a cash revolving line of credit for some repairs I wanted to do on my home and I am a bit cautious as to whether or not I should take the offer. Is the interest on cash lines of credit cheaper than a credit card? Is there anything I should look out for before signing anything?

I really want to get my house fixed up quickly as we need to put in a new heater and it is getting really cold here. My other options are to refinance my home or to put the repairs onto various credit cards.

Nicole Madison
Nicole Madison
Nicole Madison's love for learning inspires her work as a SmartCapitalMind writer, where she focuses on topics like...
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