Unsecured Revolving Line of Credit
A credit card is the most common example of an unsecured revolving line of credit.
Revolving means that once the spent funds have been paid back, they can be spent again; unsecured means that the funds are not secured by collateral.
The interest rates on these are generally higher than secured or non revolving loans.
Unsecured Revolving Line of Credit FAQs
Line of Credit (LOC) Definition
What Is a Line of Credit and How Does it Work? Revolving vs Non-Revolving
Lines of credit will either remain open, or will close, once the loan has been repaid.
Revolving lines of credit are considered “revolving”because an individual’s credit is replenished when some or all of the outstanding debt has been paid off.
In contrast, a non-revolving line of credit is closed once the account is fully paid off, such as a student loan or mortgage.
Non-revolving credit usually has a lower interest rate.
How does a Line of Credit Work? Secured vs Unsecured
A home equity loan is an example of a collateralized loan, whereby the home is the collateral and will be claimed by the creditor in the event of a default on the loan.
Credit card loans are almost always unsecured, which causes creditors to take on more risk and is why credit card interest rates are generally higher and the borrowing limits are generally lower than secured loans.