What is a Line of Credit?

Credit Information

February 18, 2021

Blog Categories

When you’re researching loans or credit cards, you’ll probably hear the term “line of credit” quite often. A line of credit is an amount of money that you have at your disposal to borrow at any time. A credit card is considered a line of credit because there is a pre-set amount that you can borrow, even if you haven’t done so yet.

How is a line of credit different from a loan?

A line of credit is kind of like a loan that you haven’t taken yet. If you have a loan, that means that you’ve already received the money and are starting to pay it back. A line of credit is the limit on the amount of money you have the ability to borrow. The amount you have to pay back depends on the amount you eventually end up borrowing.

What is the difference between a Secured Line of Credit and an Unsecured Line of Credit?

A secured line of credit means that the credit is backed by some kind of collateral. Usually, this is your house, vehicle, or some other large asset. While secured lines of credit usually have better interest rates, there is the risk of losing the backing asset if you can’t pay it back. Unsecured lines of credit usually have higher interest rates, but do not carry the risk of losing assets if you default on the loan.

If you have more questions on whether a line of credit or personal installment loan is the right move for you, talk to a World Finance team member. We always here to help make sure you’re making the best decision for your unique financial situation.