What Is An Unsecured Line of Credit?

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

Sponsored By

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. 

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.

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. 

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.

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. 

Get A Line of Credit with No Credit Check

An unsecured line of credit could be ideal for your financial situation, but maybe you worry you won’t get approved due to past credit issues. The good news is you’re not completely out of luck. 

A financial app, like Grain, is an option as it gives you access to a digital revolving line of credit without a credit check. Instead, your eligibility is based on your cash flow, as Grain believes its customers are more than just their credit scores. 

You can apply on the App Store to view your potential credit offer and receive a lending decision in minutes. Even better, submitting an application won’t impact your credit score. 

Simply connect your primary checking account, and in minutes see your pre-approval. Grain supports more than 10,000 financial institutions, so this should be a seamless process. The next step is to initiate instant transfers from your Grain digital line of credit to your checking account, and you’re all set. 

You can make purchases at your favorite retailers, pay bills or buy goods or services online using your current debit card. Simple as that! 

Consider giving Grain a test drive today. It’s free to sign up, and you’ll pay a nominal fee to access funds and interest is only assessed on funds you use at 15% non-variable APR.

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.

You may also like

A digital credit line can provide additional funds and improve your credit score. Discover the pros and cons of getting a line of credit.
Read more

Advertisement Disclosure

Product name, logo, brands, and other trademarks featured or referred to within Banks.com are the property of their respective trademark holders. This site may be compensated through third party advertisers. The offers that may appear on Banks.com’s website are from companies from which Banks.com may receive compensation. This compensation may influence the selection, appearance, and order of appearance of the offers listed on the website. However, this compensation also facilitates the provision by Banks.com of certain services to you at no charge. The website does not include all financial services companies or all of their available product and service offerings.