Unsecured personal loans have become more and more common with the years and banks offer these loans to clients every single day for purchasing computers, furniture, going on vacations, etc. However, very few know that unsecured personal lines of credit are also available and that there are many advantages provided by this kind of loans.
What Unsecured Loans and Lines of Credit Share
As opposed home equity loans and lines of credit, both unsecured loans and lines of credit do not carry collateral. Equity is the difference between the home value and the debts secured with the property. Basically, unless other specific circumstances, if you want to know the amount of equity available on a property you need to subtract the amount of the outstanding mortgage to the market value of the property. There is no need for appraisal provided that the purchase of the property was a recent one.
Since both loans and lines of credit are unsecured, the interest rate charged for them are rather high. The interest rate charged for lines of credit is slightly higher and always variable as opposed to unsecured loan rates that can be fixed. Nevertheless, the interest rate charged by either are significantly lower than the rates charged for credit cards, pay day loans, cash advance loans, etc.
Also, the loan amount you can request has no particular limit but is lower than that of home equity loans and lines of credit which equals the amount of equity available. However, most lenders have some restrictions on this matter and the amount of money you can request combined with the home mortgage cannot exceed 85% of the home value. Besides, though home equity lines of credit have an amount limit, there is not really a fixed amount you actually request. Thus, with an unsecured loan or line of credit you can get a fairly good amount too.
Line Of Credit Advantages
The main advantage lines of credit provide is flexibility. With a line of credit you get a revolving amount that only charges interests when you withdraw money from it. Other than that, only a small fee is charged every month to keep the money available whenever you need it.
If you need a certain amount, you don't need to request it, you just withdraw it from your account or issue a check against your account and the money is always available. You can request as much money as you want and as many times as you need as long as you respect the amount limit that is fixed at the time of loan approval.
Once the money is withdrawn, you can keep using your account as long as you have credit left. Repayment is simple, at certain date you just need to repay the interests and you can also repay any capital that you want. The only minimum that you need to respect are the interests (just like some credit cards).
Once you repay certain portion of the capital, the amount is available for you again whenever you need to use it. When the loan is due, there are two options: Either you need to repay the whole amount or the line of credit is transformed into a loan with fixed monthly payments for a longer period of time. There is also the possibility of renewing the line of credit provided you get approved by the lender again.
