Imagine if you had a lump sum of cash at your disposal any time you needed it. That’s sort of what you’ll get with an unsecured line of credit, but with perks. You’ll only make payments when you withdraw money, and many lenders offer competitive terms to ensure these products don’t destroy your financial health.
The Credit Pros will help improve your credit score by removing inaccurate credit information from your consumer credit reports.
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You’re more than just your credit score. With Grain, it’s possible to access a revolving line of credit based solely on your cash flow.
What is an Unsecured Line of Credit?
An unsecured line of credit is a flexible loan product. It works like a credit card and lets you borrow money on an as-needed basis from a pool of funds (credit limit). You can repay the funds in a lump sum or in monthly installments over the specified loan term.
How Does an Unsecured Line of Credit Work?
As you use the funds, you’re free to repay and reuse them as often as needed during what’s referred to as the draw period. Furthermore, you’ll only pay interest on the funds you use. When the draw period ends, you’ll no longer have the ability to make withdrawals, and the remaining balance will be payable in monthly installments over a set loan term.
Be mindful that the monthly payment will likely fluctuate since most unsecured lines come with a variable interest rate. This means the interest rate you’ll be subject to can and typically will change with market conditions. (Some lenders allow you to convert a portion of your line and secure a fixed interest rate, which also gives you a predictable, set monthly payment).
Pros of Unsecured Line of Credit
Below are some key advantages of unsecured credit lines.
Fast Access to Cash
Pull from your unsecured line of credit anytime you need cash, whether it’s to cover a financial emergency or make a larger purchase.
No Collateral
You won’t have to put the assets you’ve worked for at risk to get approved for an unsecured line of credit.
Open-ended Financing
Upon approval, you’ll have ongoing access to financing that you can tap into on an as-needed basis without having to reapply constantly.
Quick Processing Time
Most lenders issue credit decisions the same day, typically within a few minutes. So, you won’t have to wait around for weeks or months for your application to be processed and approved for funding.
The Credit Pros will help improve your credit score by removing inaccurate credit information from your consumer credit reports.
Check your free credit report and FICO credit score, understand, manage, and improve your credit and protect your personal information.
You’re more than just your credit score. With Grain, it’s possible to access a revolving line of credit based solely on your cash flow.
Cons of Unsecured Line of Credit
There are also drawbacks to keep in mind when deciding if an unsecured line of credit is a good fit.
Higher Interest Rates
Since there is no collateral requirement, you’ll likely pay a higher interest rate than you would with a comparable loan product, like a home equity line of credit (HELOC).
Harder to Get Approved
It would be easier to get approved if you have a good or excellent credit score, but if your credit score is on the lower end, lenders might be wary of letting you borrow money.
Risk of Overspending
You’re free to withdraw as much as you need up to the credit limit. But if you don’t repay what you borrowed during the draw period, you risk overspending and ending up with a hefty payment once it’s over.
Smaller Loan Amounts
Depending on your credit history, income and current debt load, it’s possible to only qualify for a loan amount that may not be sufficient enough to cover your unmet financial needs.
