An unsecured line of credit loan is different from our short term loans, as you are offered a maximum spending limit, rather than having cash transferred into your account. You can usually set the limit, use the money how you like, and repay the amount you have spent with interest, but borrow again from the same line of credit loan as needed.
While we do not offer unsecured line of credit loans at QuidMarket, we want to provide you with a thorough scope of all the options available to you to help you to make an informed decision before applying. By researching loan types, and factoring in your budget and needs, you will hopefully be able to find a finance solution that suits you. On this page, we will be discussing line of credit loans, why you may consider an unsecured line of credit loan, and sharing a comparison between line of credit vs. loans.
What Are Line Of Credit Loans?
A line of credit loan is a flexible form of credit, usually from a bank or traditional financial institution. However, you may find some lenders online provide this product. They operate in a similar way to a credit card, offering you a limited amount of funds that can be used when and how you wish. The cash you use will need to be paid with interest over a prespecified period of time. Interest will be charged as soon as money is accessed, but you will only pay interest on what you spend. If you do not spend any of your line of credit loan, you will not be charged interest. Borrowers usually make minimum monthly payments with varying amounts, but can be charged as a fixed fee or a percentage of the balance owed.
Personal line of credit loans tend to be unsecured, which means that there is no collateral underlying the loan. However, some lenders may allow borrowers to deposit collateral to secure more favourable terms, typically a lower interest rate. This is something to consider, especially if you need a large amount of cash in your unsecured line of credit loan.
Should I Choose A Loan Or Line Of Credit?
If you are trying to decide between a loan or line of credit, it is worth remembering the distinct differences between the two.
Depending on what you need the money for, a personal loan allows you to borrow a fixed amount of money that is to be repaid at a fixed amount with interest over a period of time. The money is transferred directly into your bank account for you to spend, then the repayments are to be made directly to the lender. This usually means that loans are easy to budget for, particularly if you have the money to comfortably repay.
With a line of credit loan, you are offered a capped amount of cash to spend that only starts incurring interest as soon as you withdraw. As there is a limit, you cannot overspend, and it is recommended that you stay below your limit to keep a healthy credit utilisation. This is a flexible way to borrow money, but it can also carry higher interest rates, especially if you need access to a large amount of cash.
Whether you choose a loan or line of credit truly depends on your situation. When making your decision, you should factor in:
- What you need the money for
- How much money you need
- How long you will need the money for
- Your budget
- Your current expenses
By keeping all of these in mind, you be able to build a clearer image of what it is that you need from your loan or line of credit.
The Advantages Of Unsecured Line Of Credit Loans
Like many other forms of finance, there are several advantages to line of credit loans that could make them attractive. These include:
- The ability to borrow only the money you need – you do not have to spend all of the money in your unsecured line of credit loan. You can withdraw what you need without hitting the limit.
- Interest incurred only on the funds borrowed – you can set the line of credit limit at whatever figure you think is appropriate, but you will not need to repay any interest until you have withdrawn cash. This means that if you do not spend anything, you will not owe any interest.
- Flexibility – with a line of credit, you have the flexibility to spend however much you like up to your credit limit. This needs to be repaid within a predetermined term, but once you have repaid, you can continue using the line of credit.
- Unsecured line of credit loans risk no collateral – as you do not need to secure an unsecured line of credit against on asset, you do not need to worry about losing a high value item if you miss repayments. However, missing monthly repayments will affect your credit score and you may be charged extra fees.
- Ideal for temporary cash flow issues and long term projects – no matter what you need the money for, a line of credit can be ideal for those in an emergency financial situation, those with ideas for home renovations, or those who want to consolidate their debts.
The Disadvantages Of Unsecured Line Of Credit Loans
While there are several advantages to line of credit loans, there are also disadvantages to consider that may mean an alternative is more suitable for you:
- Annual or monthly maintenance fees, regardless of use – some lenders may charge you maintenance fees to keep your line of credit active, regardless of how much you use it. This means that even if you have not used your line of credit in the first month or year, you may still be charged for maintenance.
- Higher rates than fixed loans – line of credit loans can have higher rates than fixed loans because they are unsecured. However, some lenders may allow you to secure your line of credit against an asset to reduce the interest rate, but this proves a risk to your high value item.
- Typically requires a good credit score to qualify – many line of credit lenders may require a good credit score to approve an application. While there may be some that offer line of credit loans for bad credit, you may need to consider other alternatives, such as using savings or personal borrowing.
- Temptation to spend due to ease of access – as lines of credit function like a credit card, it is almost too easy to keep spending, which can land you in hot water if you go over your limit or do not have the funds to make repayments.
There are many things to consider in this decision, but hopefully, by weighing up each of the pros and cons, and doing your own research, you will be able to choose an option that works for you. If you still need support, please use the Money Advice Service for free and impartial advice.
Alternatives To Line Of Credit Loans
A line of credit is not always the only option when you need to borrow money. Here are some other alternatives.
In the debate of line of credit vs loan, there is a lot to be said both sides. However, a personal loan may be a good alternative as you will have the cash in your bank account for one time use, you can set your repayment term and the amount you want to borrow, and there are options for those with bad credit.
Try and consider whether the purchase is necessary at that time and whether it can wait. If so, you can try to save up the money needed, which allows you to avoid having to repay with interest. You can also look to see if you already have the funds available in your savings to cover part of the purchase before applying for credit.
If you have trusted friends or family members that could help you with your financial issues or large purchase, personal borrowing is an option to explore. You can even make up a written agreement to confirm the terms and conditions.
QuidMarket do not offer unsecured line of credit loans, but we do offer short term loans over a period of 3-6 months and a tailored repayment plan to suit your budget and needs. Our loans are designed to be used in an emergency situation or to cover any short term cash flow issues, so should not be used for any long term financial support. For more information, contact us at QuidMarket or for financial support, visit the Money Advice Service for free and impartial help.
There are many types of flexible loans available for applicants, so a line of credit agreement is not always the best choice. At QuidMarket, if you require borrowing to cover a short term expense, you can choose flexible repayments based on what you can afford. By using our loan calculator, you can determine how long and how much you want to borrow, adjusting if it isn’t affordable. This can be ideal for a short term expense, such as an unexpected repair bill and will provide structured repayments.
Depending on what you can afford to pay each month, having bad credit doesn’t mean you are not a suitable applicant. If you will struggle to maintain repayments, or you are not sure how much you can afford each month, using a line of credit loan may cost you much more overall. This is because the interest is charged as soon as you start using the limit. Whilst repayments can be very low, this will mean it will take much longer to settle. At QuidMarket, we can help bad credit applicants if you can evidence that the loan repayments are affordable. You get to choose flexible terms and repay between 3 to 6 months, rather than an open-ended limit with no set repayments. This means you know exactly how much it will cost each month, how long it will take to settle and how much the interest charge will be.
If you continue to borrow month on month without repaying in full, the interest cost will potentially be high. If you only pay a small amount back each month, this will take longer than expected to settle. If you would prefer to know how much the borrowing will cost you from the start, a short term loan may be the better option. A line of credit agreement can be good for those who can settle the balance each month, minimising the amount of interest being paid. If kept for the long term, this can cost much more.
Both a credit card and line of credit loan are similar in that you are given an agreed limit to spend up to. If you only pay the minimum repayment requested each month, it will take much longer to settle and will cost more in interest. Both do provide flexibility, however, you could borrow more overall than a fixed loan if you use it often. If you have a short term financial issue that requires quick funds, it could be a better option to choose a short term loan instead. This way you can borrow exactly what you need and settle within the repayment term, knowing exactly how much the interest charge will be from the start.