Secured vs Unsecured Line of Credit: What’s the Difference?


When money’s tight, an unexpected trip to the mechanics may be impossible to pay on your own, so you might turn to a line of credit (or LoC, for short) to help. An LoC offers a quick and convenient way to take on auto repairs and other bills in an emergency.

But the choice to borrow money doesn’t stop there. Next, you have to decide between secured and unsecured lending options.Wondering what’s a personal line of credit, secured or otherwise? Keep scrolling and you’ll find out.

What is a Secured LoC?

When you see the word secured before any loan or LoC, it means you have to put up an asset as collateral.

Collateral guarantees a loan in case you can’t pay back what you owe by the due date(s). In the event you default, your financial institution may take your asset to recoup some or all of the money they lost from the loan.

What you put up as collateral may vary from financial institution to financial institution. But generally, it must be something you own that’s of similar or equal value to your LoC.

Some of the more common forms of collateral include the following eight examples:

  1. House
  2. Vehicles
  3. Investments (bonds and stocks)
  4. Jewelry
  5. Collectibles
  6. Paychecks
  7. Cash
  8. Fine art

In the eyes of your financial institution, pledging these assets means you’re less of a lending risk — even if you have a subprime credit score.

As a result, choosing a secured LoC may increase your chances of being approved, increase your limit, and lower your interest rates.

However, it may delay getting the money you need. It takes time to process your application and verify your assets, so it may take longer to hear if you’re approved.

What is an Unsecured Line of Credit?

An unsecured line of credit is not backed by collateral, so you don’t risk losing your possessions if you default on the loan.

Without the security of your assets, your experience getting an LoC may change drastically. It may be a faster option, as your financial institution won’t have to review your assets along with your application.

Your financial institution may also approve you less money and apply higher interest rates, as they won’t have the security of your belongings to guarantee the loan. These rates may climb higher if you have  a low score.

Nevertheless, you may still get an online line of credit for bad credit without using assets as collateral; you’ll just have to research your options carefully.

What Will You Choose?

Ultimately, this decision falls on your shoulders and your shoulders alone. No one but you can decide what’s the best line of credit for your situation.

So take the time to weigh these two options carefully and find out what you need to qualify for both.

Open another tab and start looking at specific requirements, terms, and conditions. With a little bit of research, you’ll be better prepared to take on your unexpected car repairs — or any other emergency bill that comes your way.


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