Learn Everything You Need to Know About an Unsecured Line of Credit

An unsecured line of credit is defined as an agreement between a lender and a borrower that allows the borrower to obtain a line of credit without providing collateral for the loan. The unsecured line of credit may also be referred to as a revolving line of credit or open ended credit. A prime example of an unsecured line of credit would be a credit card. There are several advantages to obtaining unsecured lines of credit. The primary example being that you do not have to provide collateral, so there is no risk of losing your personal property.

Another advantage of unsecured lines of credit is that, once you have been approved for the line of credit, the funds will be quickly made available to you. Similarly, if you have a “good” credit rating, then the interest rates for most unsecured lines of credit will be fairly low. However, as with any investment strategy, there are disadvantages to these unsecured lines of credit. For example, a line of unsecured credit usually does not have a set amount of time in which the loan must be paid off and the interest rates may not be fixed. It can be tempting for some individuals to spend the entire amount of the loan, and thus find themselves in debt for some time to come.

It is essential for an applicant for an unsecured line of credit to have impeccable credit. A lending institution will often approve or deny an application for a line of credit based upon the borrower’s credit history and their perceived ability to repay the loan. If an individual has bad credit and no collateral, then there are some financial institutions that will still provide an unsecured line of credit if the applicant has steady employment. However, because their credit is less than perfect, there may be additional fees or higher interest rates attached to the loan.

Even if you have almost perfect credit, there will still be certain fees associated with maintaining an unsecured line of credit. These fees may include an annual membership fee and monthly maintenance fees that are charged on top of the interest fees. Over time, as the credit rating of credit impaired individuals improves, he or she will be able to secure a better interest rate on their unsecured line of credit. Although they have numerous benefits, you should investigate all of your financial options before settling upon an unsecured line of credit.