A line of credit is a great way to prepare for a “rainy day,” because although we like to think of a positive future, it’s a good idea to make sure there’s a safety net in place for unforeseen financial emergencies. Like a credit card, a line of credit (LOC) allows you to access funds whenever you need them. As long as you draw on the funds in your line of credit, you’ll have a minimum payment due: however with a line of credit, your interest will almost always come in at a lower rate in comparison to a high interest credit card.
An unsecured line of credit doesn’t require you to back it up with any kind of collateral, which also means it’s a little more challenging to apply for one. Without collateral the risk is higher for the lender, therefore higher interest rates apply.
A secured line of credit is backed by collateral. Most people use their home as collateral when setting up this type of credit. With this kind of collateral behind a secured line of credit, the interest rates become much lower. However the best advantage of a secured line of credit is that you’re allowed access to more money because you’re backed by the security of your assets.
Even if they don’t touch it for years, many people choose to get that secured line of credit (LOC) lined up so that it’s available to them when the chips are down. When you buy your home you aren’t thinking about cloudy skies in your future. However your home itself is a great way to put the security you need into place in case you run into a patch of bad luck.
For example, no one wants to prepare for losing a job. The routine of going to work every day, trying your best for an employer, dealing with your co-workers, plus juggling the challenges of your personal life can be quite enough to think about for anyone.
However, when you have a job plus your home as collateral, it’s possible to apply for the secured line of credit that will help you down the road should something unfair, unprofessional, or unexpected occur at your workplace.
Many people choose to put a secure line of credit in place even if they don’t need one, because once an emergency such as loss of employment occurs, an application for a line of credit simply won’t be considered.
With a secured line of credit in place, you’ll have access to a much larger credit limit with a lower interest rate in comparison to an unsecured loan. Plus, you can access this type of loan on an ongoing basis to help you financially whenever you need it.
Sometimes we wait until something unfortunate happens before we shift gears into “emergency mode.” However once you become a home-owner, you have the collateral to back up your new financial responsibility with greater security in the form of a secured line of credit. It’s a great idea to put your safety net in place while you’re on top, because when the table turns, it’s almost impossible to get a low-interest loan as large as a secured line of credit.