All you need to know about Unsecured Line of Credit

Jimmy Hilloo | July 11, 2022

Lines of credit are a blessing for people who need access to funds at regular intervals. After being approved for a secured or unsecured line of credit, one is not required to use the whole amount at once. They can borrow smaller amounts, with interest being charged only on the amount withdrawn. One can control their expenses in this way without being burdened by loan EMIs.

What is unsecured line of credit?

The banks don’t take any asset as security in an unsecured line of credit. The interest charged is much higher since the lender assumes a greater degree of risk. So, not surprisingly, an unsecured line of credit is tougher to get for both individuals and businesses. An unsecured line of credit can be of three types, a revolving loan, a term loan, and a consolidated loan. 

How to apply for unsecured line of credit?

Applying for an unsecured loan of credit is very simple. All you need to do is step into your bank with all the required documents. The bank will check your monthly income and your credit scores during the application before approving your loan request. Finally, the interest rate and the credit amount will be based on your security, monthly income, and credit score. If you’re a pre-approved customer, loan disbursement takes just two minutes.

What is the difference between secured & unsecured line of credit?

The key difference between secured and unsecured lines of credit is that the latter doesn’t require you to provide an asset as collateral to obtain the credit. A second chief difference between them is the rate of interest that’s charged. Unsecured loans have higher rates of interest when compared to secured loans. That’s because the lender’s risk in unsecured lines of credit is higher than in secured lines of credit.

Because of these two reasons, unsecured lines of credit are more difficult to obtain, as it’s riskier for banks to disburse such loans. Finally, unsecured lines of credit usually have shorter repayment periods as compared to secured lines of credit. That’s because they’re less desirable contracts as compared to secured lines of credit.

What financing solution is right for me?

Choosing between secured and unsecured lines of credit essentially boils down to why you’re using them. If you’re looking for a line of credit for purchases on a daily basis, then an unsecured line of credit like a BNPL scheme or a credit card makes more sense. Plus, an unsecured line of credit allows you to access funds as and when you need them. However, an unsecured line of credit is usually not a great idea if you need to borrow a huge amount of money. It tends to involve more risk and has higher interest rates. Since a secured line of credit is cheaper and easier to obtain, it’s the right choice when the loan amount is very high.  

Overall, if you require smaller amounts of funds quickly for not-so-large expenses, then an unsecured line of credit such as a credit card or a BNPL scheme is better for you. ePayLater is one of the best BNPL financing solutions in available in the market today. They provide a platform for responsible borrowers get have easy access to funds. 

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