No matter how carefully we prepare for “the future,” it’s always a mystery. It can hold adventure, and pleasant surprises; the future can also throw little bumps into the road like fiscal hardships or emergency situations. You may find that you need a little help paying the bills or filling in financial gaps from time to time down the road.
From pay-day loans to credit cards, there are tons of funding options to explore. However these options tend to come with a high price because of steep interest rates and fees. If you’re looking for a more economical loan option, you may want to consider a secured line of credit (LOC). A secured line of credit can be a great budget-friendly solution, and can even be put into place as a safety net so that you’re ready for any surprise the future has secretly prepared for you.
A line credit works (kind of) like a credit card. You have the freedom to use the funds available whenever it suits you best. Also, like a credit card, as long as you draw on the funds in your line of credit, you will have a monthly minimum payment due, which will be outlined with a summary of interest and fees. However the advantage the line of credit has over a credit card is that the interest rate is almost always lower.
Lines of credit fall into two general types:
- Unsecured: An unsecured line of credit isn’t backed by collateral, which makes it a little difficult to apply for, and means that higher interest rates will be applied to your account in order to cover the higher risk factor.
- Secured: A secured line of credit is backed by collateral. This can be your vehicle, your boat – or other valuable assets, like your home. A secured line of credit comes with a much lower interest rate because with collateral behind it, it presents less risk to the lender.
If you think a line of credit is the right choice for you, there are a couple of ways to explore a secured line of credit. A secured personal LOC can be attached to your property. As mentioned, the collateral attached to this loan (the collateral being your property) ensures that the interest and fees will be lower. You’re free to use your secured personal LOC however you wish: but since your assets are held as collateral, they may be seized if you can’t pay off your balance in time.
A secured home equity line of credit (HELOC) allows you to access funds for home improvement projects, repairs, and emergency fixes. A HELOC is backed by the value of your home, which is why this type of line of credit is always considered secured. HELOCs tend to have very low interest rates because of the diminished risk to the lender. You can apply for a HELOC with your mortgage lender, or another financial institution.
No matter which option you use, a secured line of credit can be a big help down the road if you have to face any kind of financial adversity. You can even put one in place and avoid touching it unless you have to face an emergency; so you can rest easy knowing that a safety net is there for you. Life is an adventure, and you never know what the future has in store for you. It doesn’t hurt to be prepared.