A loan that functions similarly to a line of credit is called what?

A loan that functions similarly to a line of credit is known as an open-end loan. This type of financing allows borrowers to access funds up to a predetermined credit limit and draw on that line of credit as needed. Borrowers have the flexibility to withdraw, repay, and borrow again, similar to how they would use a credit card or a home equity line of credit.

With an open-end loan, the borrower pays interest only on the amount drawn, not the entire credit limit, which makes it an attractive option for individuals who may need varying amounts of money over time. This contrasts with a closed-end loan, where the borrower receives a set amount of money upfront and must repay it in fixed installments, typically without the ability to borrow again once the loan is paid off.