Unsecured Line of Credit
An Unsecured Line of Credit Can Be a Useful Financial Planning Tool
A line of credit is a loan - either secured or unsecured.
Most of us are familiar with home equity lines of credit (HELOC's).
Unsecured lines of credit are offered by banks and stock brokerages. They are usually only available to the more well-to-do, with credit lines of $100,000 not uncommon.
Major corporations use multi-million dollar lines of credit to even out cash flow problems and even to pay the payroll.
An unsecured line of credit carries many advantages. First of all, they usually have no annual fees and interest rates that are relatively reasonable, although quite a bit higher than a HELOC would carry. You pay interest only on the money borrowed. As you repay the loan, your line of credit is restored. And you don't have to encumber any assets to borrow.
Unlike a HELOC, unsecured lines of credit usually run indefinitely and as long as you remain in good standing with your bank, you can keep drawing on it for many years.
The bad things about unsecured lines of credit are the higher interest rates they carry, as well as the fact that in many cases, accessing the credit line can incur fees of up to 3% of the amount borrowed.
Lines of credit can be a useful financial tool, especially for small business people.
Unfortunately, at least now (April 2009), many small businesses report problems obtaining credit to keep their businesses going.
Their best best for financing might be at local or regional banks which have not been dragged doen by the financial mess now unfolding.
If you are not a business owner but are interested in a line of credit, a good place to start would be with your stock brokerage, if you have one. Most major brokerages have their own banks and those banks are geared to the needs and demands of the wealthy. You might be able to get better terms than at your local bank. The terms will likely get better the higher your account balance.
Your next stop can be any major full service bank. Shop around and compare terms, especially the fees charged for a cash advance, which can be killers.
