Secured vs. Unsecured Line of Credit: What's the Difference?

A Line of Credit gives you access to emergency funds without repeating the loan application process every time you need to borrow money.

For example, let's say you're facing a long-term home renovation project. You know you'll need ongoing access to money, but you're not sure how much or how often you'll need to pay for different parts of the project. Rather than taking out multiple small loans, you can open a single Line of Credit that allows you to tap into funds as needed.

If this sounds appealing, you'll need to decide whether a secured or unsecured credit line is right for your financial situation.

What is a secured Line of Credit?

A secured Line of Credit is a type of revolving loan backed by collateral. Collateral is something valuable you offer a lender in exchange for a loan.

To open a secured Line of Credit, you'll need to work with a lender that accepts a form of collateral that you own free and clear. Common types of collateral include your car title or the deed to your house. Secured Lines of Credit can be easier to qualify for because they're less risky to the lender.

If you can't repay the money you borrow, the lender simply keeps the collateral to recoup the costs. Only when you repay a secured loan in full, plus interest, do you get the collateral item back.

Types of secured credit lines

There are different types of secured Lines of Credit you can consider based on the collateral you have to offer. These include:

Home equity lines of credit

With a home equity line of credit (HELOC), you're borrowing money based on the value of your home. Your credit limit is calculated as the appraised value of your home minus the amount you owe on your mortgage.

In order to open the credit line, you'll offer your house as collateral, which means you risk losing it if you can't repay what you borrowed.

Business lines of credit

If you need revolving credit for business purposes rather than personal ones, you can apply for a business line of credit. Similar to a home equity line of credit, your business serves as the loan collateral.

Car title lines of credit

If you don't own a home or business but you do have a paid-off vehicle, you may be able to apply for a credit line using your car as collateral. With these types of secured personal loans, you can keep driving your car despite handing over your title to the lender. However, your lender will keep the title and repossess the vehicle if you can't repay what you borrow.

Alternative lines of credit

In addition to using your car, home, or business as collateral, you might find a lender that accepts other valuable assets in exchange for a secured line of credit. These assets might include rare collectibles, RVs, boats, and jewelry, among other things.

Advantages of a secured Line of Credit

While secured Lines of Credit aren't for everyone, they do offer several advantages. With secured financing, you:

  • May secure a lower interest rate since the lender isn't taking on much risk.
  • Don't necessarily need a good credit history.
  • Can use your Line of Credit for anything you need.

Disadvantages of a secured Line of Credit

As with any type of personal loan, secured credit lines also have drawbacks. For instance, you:

  • Risk losing whatever you offer as collateral.
  • May lose your home, business, or means of transportation.
  • May face higher fees compared to other types of personal loans.

What is an unsecured Line of Credit?

If you don't like the risks associated with secured loans, you can also opt for an unsecured Line of Credit.

Unsecured Lines of Credit work the same way that secured ones do in that they offer easy access to ongoing funds. The main difference is that unsecured loans don't require collateral. Instead, the amount of your credit line is largely based on your income, employment status, and current debts.

Advantages of an unsecured Line of Credit

Unsecured loans have several advantages. For instance, an unsecured Line of Credit offers:

  • Less risk to the borrower because you don't have to offer anything valuable as collateral.
  • Easy access to money when you need it most.
  • Quick funding, with most lenders depositing money directly to your checking account upon approval.

While most traditional lenders won't offer unsecured loans to someone with bad credit, Advance America works with borrowers from all credit backgrounds. As long as you live in a state where we offer unsecured Lines of Credit, we can use your proof of income and employment status to make an approval decision.

Secured vs. unsecured Line of Credit: Which one is right for me?

If you have bad credit and can't qualify for an unsecured credit line, secured financing may be your only option. Unfortunately, secured loans come with more risk to the borrower because you could lose a valuable asset. An unsecured Line of Credit may be a better option due to there being no risk of losing collateral – however, there are other factors to consider, such as origination fees and interest rates. These factors will vary by lender and borrower qualifications. The best option for you will be the option that best fits your financial situation.

Alternatives to a personal Line of Credit

If you're not sold on opening a Line of Credit of either type, you might consider one of these options:

Home equity loans

Similar to a HELOC, a home equity loan is based on the value of your home. Home equity loans typically offer competitive interest rates, usually close to the rate of your initial mortgage.

Secured credit cards

A secured credit card requires you to pay a cash deposit when you open the account. You then use the card just like you would a traditional credit card, but if you're unable to make your monthly payments, the lender keeps your deposit.

Payday Loans

If you want a quick, small-dollar unsecured loan that's easy to apply for, consider a Payday Loan. This type of personal loan is designed to be repaid on your next payday, doesn't require a credit check, and is available online or in-store — often with same-day funding.

Installment Loans

If you like the ease and convenience of a Payday Loan but need a larger amount of money, consider an Installment Loan. With an alternative lender like Advance America, you don't necessarily need a good credit score to qualify for the amount you need.

Apply for an unsecured Line of Credit today

If an unsecured Line of Credit sounds like your best option, consider choosing Advance America as your go-to lender. We offer unsecured loans and credit lines online or in-store at convenient locations across the country. Plus, if you're approved before 10:30 AM EST, you can receive same-day funding!

Ready to apply for an unsecured Line of Credit? Start your online application now!

About the Author

Jalin Coblentz has contributed to Advance America since 2023. His experiences as a parent, full-time traveler, and skilled tradesman give him fresh insight into every personal finance topic he explores.

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Since 1997, Advance America has helped millions of hardworking people with a variety of financial solutions including Payday Loans, Online Loans, Installment Loans, Title Loans and Personal Lines of Credit.
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