What is a secured line of credit?

A secured line of credit is a revolving credit facility backed by collateral — such as real estate, a savings deposit, or business assets — that the lender can claim if the borrower defaults. Because the lender's risk is reduced by the collateral, secured lines typically offer lower interest rates and higher credit limits than unsecured lines. You draw funds as needed, repay, and can redraw up to your limit.

A secured line of credit combines the revolving structure of a credit line — draw what you need, repay, redraw — with a collateral pledge that protects the lender. Because the lender can recover against the asset if you stop paying, they take on less risk and can typically offer better terms: a lower interest rate, a higher credit limit, or both compared to an unsecured line of credit or personal loan.

Common types of secured lines of credit

Home equity line of credit (HELOC): Uses the equity in your home as collateral. A HELOC is one of the most common secured lines for consumers — rates are typically tied to the prime rate, and limits are based on your available equity. If you default, the lender can foreclose.
Savings-secured line: Some banks and credit unions offer lines backed by a savings or CD account. The deposit is frozen as collateral. Common for building credit or accessing emergency funds without breaking a CD.
Business secured line: For small businesses, a revolving line of credit backed by accounts receivable, inventory, or real estate. Interest accrues only on the drawn balance — a common working-capital structure for businesses with seasonal cash flow.
Investment-secured line (margin or pledged-asset line): Lines backed by a brokerage portfolio. Less common for everyday borrowers; used by investors who want liquidity without selling assets.

Secured vs. unsecured lines: the tradeoffs

The core tradeoff is risk vs. cost. Secured lines typically carry lower APRs because the lender has a recovery path — but defaulting means losing the pledged asset. Unsecured personal lines of credit carry higher rates because the lender has no collateral, but default doesn't put a specific asset at immediate risk (though it damages credit and can lead to legal collection). The CFPB's resource on HELOCs is the clearest government reference on how the most common secured line — the HELOC — works.

How interest and draws work

Unlike a term loan, which delivers a lump sum and then amortizes, a line of credit has a draw period during which you can borrow, repay, and borrow again up to your limit. Interest accrues only on the outstanding balance — if you have a $50,000 line and draw $10,000, you pay interest on $10,000, not $50,000. Many secured lines have a variable rate tied to the prime rate, which means your rate can change when the Federal Reserve adjusts benchmark rates. After the draw period ends, most lines enter a repayment period during which you pay down the principal.

What regulators say

A HELOC is a form of revolving credit in which your home serves as collateral. Because a HELOC is secured by your home, if you fail to make payments, you could lose your home. — CFPB — What is a home equity line of credit?
The interest rate on a variable-rate HELOC is typically based on an index, such as the prime rate, and changes when the index changes — meaning your payments can increase or decrease over the life of the line. — CFPB — Home equity resources
Under the Truth in Lending Act (TILA), lenders must disclose the terms of a secured line of credit, including the APR, fees, draw period, and repayment terms, before you open the account. — CFPB — TILA disclosures
The Federal Reserve's Survey of Consumer Finances tracks that home equity lines of credit are among the most widely held forms of secured consumer debt after mortgage loans. — Federal Reserve — Survey of Consumer Finances

Key takeaways

A secured line of credit is revolving — draw, repay, and redraw up to your limit — backed by collateral.
Common types: HELOC (home equity), savings-secured lines, and business lines backed by receivables or assets.
Lower rates than unsecured lines, but defaulting puts the pledged asset at risk.
Interest accrues only on the balance you've drawn, not the full credit limit.
Variable-rate lines tied to the prime rate can change when benchmark rates shift.