Define Unsecured Line of Credit

An unsecured line of credit is a loan that is not secured by collateral; the lender has no recourse if you fail to pay an unsecured loan. Unsecured lines of credit are typically approved for business use.

Secured or Unsecured?

If you don't repay a secured loan, you can lose your home to foreclosure or your car can be repossessed. An unsecured loan does not require collateral (also called a security interest), but its interest rate and other charges are usually much higher than for a secured loan.

Line of Credit

A loan is given for a fixed amount to be repaid within a specified amount of time using a specific repayment terms. A line of credit provides access to funds as needed. You only pay finance charges on funds used.

Cash Flow

You can use a line of credit as needed. As with credit cards, it's important to use the line of credit carefully and avoid carrying a large balance for prolonged periods.

Why a Line of Credit

Banks typically provide lines of credit to businesses. A line of credit can provide short term cash flow or be used for unplanned expenses.

Checking the APR

APR stands for annual percentage rate. The amount of interest, fees and charges are calculated as an annual percentage rate and included in your loan documents. Before taking out an unsecured line of credit, make sure you know the APR.