Credit Limit (definition)

Credit Limit

Credit limit refers to two similar ideas in different contexts.

In an installment loan (where a borrower has a definite due date when the loan should be fully paid off), the credit limit is a lender-specified, maximum dollar-amount limit for the lifetime of the loan. In these loans, the borrower can take out multiple advances until they reach that limit. The credit limit may be specified during the initial setup of the loan.

In a line-of-credit loan, borrowers have no final due date, but can instead continue to take out funds as long as they make payments. In these loans, the credit limit is the maximum amount that a borrower can take out at any given time.

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