Unsecured Lines of Credit

Copyright (c) 2008 Anthony Griswold

Do you have a business and need more cash flow for expansion, advertising, or to purchase inventory and equipment? Do you have personal debt you want to consolidate, need money for home improvement, or other project in your life? If you need funds, especially an amount that may fluctuate, you have probably considered an unsecured line of credit. An unsecured line of credit is different from a loan because the lender extends an amount that is usually fixed for you to use but you do not have to use it all at once and only have to make payments of the amount that you have used.

A installment loan requires payment on the dollar amount borrowed, even if you do not use all the funds that the loan was approved for. A line of credit is a good choice for people with ongoing expenses or a project that does not require all the cash upfront because you do not have to repay the loan amount until you have used the funds.

Like a loan there are two types of lines of credit, secured lines of credit and unsecured lines of credit. Secured lines of credit have better terms and interest rates but they require you to put up some of your assets including your house, car, property, or business in order to secure the line of credit. Unsecured lines of credit do not require any collateral so you do not risk your assets, but their interest rates are higher and you cannot usually get as much cash.

Credit cards can be used as an example of unsecured lines of credit, you only need to pay on the principle amount you have used and they carry higher interest rates than secured lines of credit from a lender. You can also get unsecured lines of credit from a local lender or from a national lender over the phone or internet, but expect to pay more in interest and get less cash.

The option of an unsecured loan or a secured one is one that should not be taken in a hurry. You should consider your cash needs, what assets you have, and the level of risk you are comfortable with when choosing the line of credit that is right for you. If you need a large line of credit and have plenty of assets a secured line is best for you. If you do not have or do not wish to risk your valuable assets, an unsecured line of credit is best for you.