In a credit arrangement where a consumer is pre-approved for a line of credit, what is this type of debt called?

In a credit arrangement where a consumer is pre-approved for a line of credit, this type of debt is referred to as revolving debt. This is because revolving debt allows consumers to borrow money up to a certain credit limit and pay it off over time, with the amount available to borrow replenished as payments are made.

Revolving debt is characterized by its flexibility; consumers can utilize the available credit as needed, within the pre-approved limit, and they have the option to make minimum payments on the borrowed amount. This form of debt is commonly associated with credit cards and lines of credit, where the borrowing is not set to a fixed amount or specific payment schedule beyond the minimum payment due each month.

In contrast, installment debt involves borrowing a fixed amount of money and repaying it in installments over a predetermined period. Secured debt requires collateral to back the loan, while unsecured debt does not have collateral but includes higher risk to lenders. Understanding these distinctions is crucial for consumers when managing their credit and debt.