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What is Unsecured Credit?


Wise Geek defines personal or unsecured line of credit as a loan with a fixed amount that can be re-borrowed as the loan is repaid. Unlike a credit line that is secure, people or businesses are not required to put up collateral (real estate) for this type of loan. In absence of collateral, these lines of credit tend to have higher interest rates than do secured loans because they are a higher risk loan to the lender.

On the other hand, an unsecured credit card is one that is not related to a savings deposit account. These are basically pre-approved loans that allow a person to spend money up to a certain limit without actually having the cash. Credit companies decide how high of a spending limit to extend to people based on their prior credit histories. Individuals enter contracts to repay any money that is charged on their cards, either in the form of a lump sum within one month or through smaller monthly payment.

This article touches on the flexibility of unsecured lines of credit, the difference between secured and unsecured debt as well as information regarding unsecured credit cards.

What is the Flexibility of Unsecured Lines of Credit?


The accounts receivable and investments are operating assets of a company which are used as collateral for lines of credit. Lenders do not ask for collateral for unsecured credit. However, they charge an annual fee which is charged on the second year. Unsecured credit is used for business financing as source of temporary funds. The advantages of unsecured credit are the following:
1. Flexibility – The borrower can acquire financing when it is needed.
2. The borrower may repay the loan in regular installments and for a longer duration.
3. The payment process is relatively easy.
4. The interest rate is relatively affordable and lower than credit card rates.
However, there is also a disadvantage because it can bury you debt and unsecured line of credit is not accessible to all. The borrower should have been in business for two continuous years; should have good credit history; and, annual income. The financial history of the borrower is always confirmed. Borrowers must be aware of interest rate details, extra time for repayment, annual and additional fees.

What is the Difference between Secured and Unsecured Debt?


There are two kinds of debt which is secured debt and unsecured debt. It is important to distinguish between the two especially in the issue of bankruptcy. Secured debt is secured by collateral while an unsecured debt is one where no such security is agreed upon. Secured debts are guaranteed by real estate and automobiles. Once you fall behind on payments, the creditor has the right to take possession of the house or car and sell this collateral to recover the money. The extra money generated from the sales should be returned to the creditor. This act is called foreclosure.
Most people believe that by going bankrupt, the credit card company can take back whatever they purchased with a bank or store credit card. However, this is not true. Liens are not typically registered on items that you buy with your credit card. An example is the purchase of a certain item. If you buy merchandise using your credit card the day before you file for bankruptcy, the credit card company will assume you have committed fraud and demand payment in full for your purchase. However, that still does not make it a secured debt, because no lien was registered against that item.

What is an Unsecured Credit Card?


All enterprises may need help with their cash flow. One way of resolving this issue is to acquire an unsecured credit card particularly for small businesses. By obtaining an unsecured credit card for your business, you do not need to put up any collateral. You should go through an application process. The credit card company will make sure to check the business and your credit rating. It may even be faster to get results through an online application. If you have an unsecured credit card, it will be easier to make purchases. In fact, you will be able to get items at any store that accepts credit cards. Possession of a business credit card will give you a lot of flexibility.
With unsecured credit cards, you will always have a record of any purchase. You will also have the option of giving a credit card to your key employees for their use. They will all be linked to the same account, but you will be able to see what each person is spending on that account. Since using a credit card is quicker, your employees will also be able to spend more time on their important work instead of longer transactions. There are credit card reward programs but higher interest rates.

Coping with Credit Problems


Both secured and unsecured credit lines can cause you problems if payments are not made on time. This is something that you have to watch out for. If you make payments promptly, you do not encounter problems related to your loans. Likewise, your credit score remains clean and you can always avail of loans in time of need.

References


wisegeek.com
wisegeek.com
loansforcanada.net
canadiancapitaladvance

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