Know the difference: secured vs. unsecured lines of credit.
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You save for what you need. You’ve got an emergency fund.
But then something totally unexpected happens. You have an accident driving to school and the car is totalled. Or you finally take that 4 over 5, and your expenses are higher than you thought they’d be.
Everyone needs extra funds once in a while. However, it’s important to understand the differences between the types of credit or loans available, and manage the credit you do have in a responsible way.
For many people, a line of credit (LOC) is a good source of emergency funds.
An LOC (also known as ‘revolving’ credit) is an arranged amount of standing credit that’s available for you to use at any time, provided you do not exceed the limit allowed. You can continuously borrow and repay up to your predetermined limit.
How does an LOC stack up against a loan?
Compared to a loan, an LOC has several advantages. One of the biggest is that you only pay interest on the money you actually use. So if you have a $50,000 LOC and use $5,000, you’re only charged interest on that $5,000. It’s one of the reasons why LOCs are popular as a source of emergency funds.
Another advantage? An LOC is reusable. You apply just one time, and once approved, you can access any amount of the credit line at any time. Finally, the rate of interest on LOCs is usually lower than on credit cards.
Check out the walloping difference in the interest you pay on credit cards, loans, and an LOC.
There are two types of lines of credit: secured and unsecured.
An unsecured LOC is great for consolidating high-interest loans.
With no fees to set up and a maximum borrowing amount of $50,000, the unsecured option is ideal for lower-priced needs and those looking to consolidate multiple high-interest credit cards/loans into one, low-interest option.
Need a greater amount of credit? Consider a Secured/Home Equity Line of Credit (HELOC).
A secured LOC (backed by the equity in your house) lowers the risk to the lender so you get a lower interest rate, lower monthly payments, and a significantly higher limit. In fact, if you plan to use a significant amount of credit, you can save hundreds of dollars a year with a secured LOC.
The chart below sums up the differences between the unsecured and secured LOCs:
| Unsecured | Secured | |
| Benefits | Get access to credit, when you need it | Lower interest rate on credit |
| Ongoing access to funds for everyday purchases | Ongoing access to funds for larger purchases, debt consolidation, and home renovation | |
| Security required | No | Yes |
| Lending range | Maximum $50,000 | The highest credit limit available to you (up to 80% of the value of your home) |
| Rate | Variable, higher than a secured line of credit | Variable, lower than an unsecured line of credit |
| Term | Open | Open |
Whether you’re looking for comprehensive credit advice, competitive rates, or a combination of both, we’ve got you covered. An Educators lending specialist will have the answers to all your borrowing questions, and can help you decide the best way for you to get the money you need.
Get in touch with an Educators mortgage agent today.
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