In a line of credit loan, interest is charged on which amount?

Enhance your understanding of financial advising with the Qualified Financial Adviser (QFA) Loans Exam 1 Test. Prepare with detailed questions, hints, and explanations to ace your exam!

Multiple Choice

In a line of credit loan, interest is charged on which amount?

With a line of credit, you have a maximum amount you can borrow. Interest is charged only on funds you have actually drawn and owe—the balance you carry. The unused portion remains available but does not incur interest. As you repay, the balance drops and so does the interest calculated on it, while the full credit limit stays unchanged. So the amount that gets interest is the used portion of the credit line.

With a line of credit, you have a maximum amount you can borrow. Interest is charged only on funds you have actually drawn and owe—the balance you carry. The unused portion remains available but does not incur interest. As you repay, the balance drops and so does the interest calculated on it, while the full credit limit stays unchanged. So the amount that gets interest is the used portion of the credit line.

More practice questions