Do you have a business and need positive cash flow for expansion, repairs, or to purchase supplies and equipment? Do you have personal debt you want to consolidate, need money for renovations, or other project around the house? If you need cash, especially an amount that may fluctuate, you have probably considered a line of credit. A 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 typical loan requires you to make payments on the total loan amount, even if you have not used all of the funds. 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 are examples of unsecured lines of credit, you only have to pay on the 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 choice between a secured and unsecured line of credit is one that should not be taken lightly. 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 are not comfortable risking your assets or don't have any, and unsecured line of credit is best for you.
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