What Is a Secured Line of Credit?

Written by Banks Editorial Team
3 min. read
Written by Banks Editorial Team
3 min. read

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Credit cards and personal loans aren’t the only way to access the cash you need. A secured line of credit could also be an option, but maybe you’re unsure how it works. In this guide, you’ll learn what to expect when you open a secured line of credit, along with the key benefits and drawbacks it offers, eligibility criteria and other alternatives worth considering. 

Get a Digital Credit Card
Access a revolving line of credit based on your cash flow, not your credit score, with the Grain digital credit card.

How A Secured Line of Credit Works

As the name suggests, a secured personal line of credit is a debt product backed by collateral. Common assets used for security include vehicles, homes, boats or other valuables. 

You can apply for a secured line of credit through traditional banks, credit unions or online lenders. If approved, you’ll have access to a pool of funds you can draw from, typically through a lender-issued debit card or check. There’s also the option to deposit the money directly into your checking or savings account each time you make a withdrawal if you already do business with the financial institution. 

There’s no obligation to use the entire amount, and you’re free to repay and reuse the funds as often as you like during the draw period. Plus, you’ll only pay interest on the amount you use. 

Benefits of a Secured Line of Credit

Secured lines of credit offer an assortment of benefits to account holders. 

Lower Interest Rates

Since these debt products pose less of a risk to lenders, you could receive a lower interest rate than you would with a credit card or loan designed for consumers with less than perfect credit. 

Ease Cash Flow

Cash flow issues can mean bad news for your finances and credit health. But with a secured line of credit, you’ll have access to a pool of cash that you can pull from any time money’s running low. 

Lower Credit Scores May Be Accepted

You don’t need good or excellent credit to qualify for a secured line of credit. In fact, it’s highly likely that you’ll get approved if the asset you use as security holds substantial value. 

Longer Loan Repayment Terms

Most secured lines of credit come with extended repayment periods. This beats payday loans and other expensive forms of credit that only give you a few weeks or months to repay what you borrow. 

Get a Digital Credit Card
Access a revolving line of credit based on your cash flow, not your credit score, with the Grain digital credit card.

Drawbacks of a Secured Line of Credit

Unfortunately, there are also drawbacks to keep in mind. 

Necessity Of a Collateral

You won’t get approved for a secured line of collateral without putting up collateral as security. This makes these loan products inaccessible to consumers without assets. 

Risk Of Asset Loss

If life happens and you fall behind on loan payments, the lender could seize your assets to recoup what they’re owed. 

Variable Interest Rates

You will likely get a variable interest rate, which means your borrowing costs could be high or low depending on market conditions. Monthly loan payments will also vary over time. 

How To Qualify for a Secured Line of Credit

To increase your approval odds, you should meet the following criteria: 

  • Have an asset with substantial value
  • Have the means to repay what you have borrowed 
  • Meet the lender’s minimum credit score requirement (if any) 

Alternatives To a Secured Line of Credit

Perhaps you’re thinking about looking beyond a secured line of credit to meet your funding needs. In that case, there are other options available, including: 

  • Unsecured personal line of credit: Borrowers with good or excellent credit scores may find unsecured lines of credit more attractive. You’ll likely get better terms, and your assets won’t be at risk of seizure if you experience financial hardship and fall behind on loan payments. 
  • Secured credit card: Secured cards are also an option. They work like traditional credit cards but require a security deposit that’s generally equivalent to the credit limit to open an account. If you have a solid credit rating, you may qualify for a balance transfer card that offers a zero-percent APR of up to 18 months (depending on the credit card product). 
  • Personal loan: These debt products are available to consumers with varying credit ratings – the lower your credit score, the higher the interest rate. You’ll get the loan proceeds in a lump sum and make equal monthly payments. Plus, interest is payable on the entire loan amount even if you spend a portion of what you borrow. 

There’s also Grain, a credit app that offers digital revolving credit lines without a credit check. For many consumers with past credit challenges, it’s the better option as there are little to no fees, the cost of borrowing is lower, and you’ll have a chance to start rebuilding your credit score organically. 

To get started with Grain, download the mobile app on your iPhone or iPad. (If you don’t have an Apple device, you can join the Android waiting list and receive an alert when the app goes live on Google Play). Next, submit an application, and you’ll receive a credit offer in minutes. 

If you decide to move forward with Grain, it’ll sync with your bank account, and you can use your current debit card to make purchases. Even better, instant transfers can be initiated in real-time from your digital line of credit to your checking account to give you a seamless borrowing experience. 

Give the app a try today, or visit the website to learn more about how it works and why it could be a good option for you!

The application process is simple, it’s free to sign up, and there’s no obligation to use Grain if you decide it’s not a good fit for your financial situation.

Get a Digital Credit Card
Access a revolving line of credit based on your cash flow, not your credit score, with the Grain digital credit card.

Disclaimer: Credit offer based on cash flow in the linked checking account and may require a credit check. All accounts are subject to ID verification and approval. See your Credit Agreement and Terms of Service for further details.

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