What is the difference between a letter of credit and a line of credit

What is the difference between a letter of credit and a line of credit Introduction: The World of Financial Instruments Greetings, audience! In the vast realm of finance, numerous instruments facilitate transactions and empower businesses. Today, we'll explore two such instruments: the letter of credit and the line of credit. While they may sound similar, they serve distinct purposes. Let's dive in! Unveiling the Letter of Credit A letter of credit, often abbreviated as LC, is a document issued by a financial institution, typically a bank. It acts as a guarantee to the seller that they will receive payment for goods or services, provided they meet the stipulated conditions. In essence, it assures the seller that even if the buyer defaults, the bank will step in and fulfill the payment. This makes it a popular choice in international trade, where trust and assurance are paramount. The letter of credit offers security to both parties involved, fostering smooth transactions. Decoding the Line of Credit