A line based personal loan comes with numerous advantages. Some of these are described as follows:
You can use this revolving credit to meet any of your business and personal needs. For example, you can use the funds to purchase raw materials for your business, pay for medical expenses, or cover leisure expenses such as travelling.
You are under no obligation to withdraw the entire sanctioned limit at once. It means that whenever you feel the need for funds, you can withdraw the necessary amount and are only responsible for paying interest on the amount withdrawn.
The process for application and disbursal of line-based credit is completely digitalised. Once you are approved for the personal line of credit, you have quick access to funds with just a few clicks on your device screen.
If you're located in Odisha and need recurring financial support, applying for a personal loan in Bhubaneswar can be a smart choice, as several reputed lenders now offer line-based loan options tailored for city residents.
Before applying for a line based personal loan, you must weigh the cons associated with it. A few major ones are described below.
Personal credit lines hurt your credit score if you do not keep track of how much funds you have used. According to the credit bureaus, your creditworthiness will suffer if you use more than 30% of your revolving loan limit.
It is generally recommended that you use a loan EMI calculator to determine your affordability. However, calculating your monthly obligations beforehand with a personal line of credit is difficult. As a result, budget mismanagement is more likely with this type of loan.
A personal line of credit has a shorter repayment period than other loan types.
Having easy access to money may tempt you to overspend on things like outings, shopping, dining, and other leisure expenses. If you do not keep track of these expenses, your debt will build up over time, making repayment difficult.
Many people believe that because this loan requires you to pay interest on the amount withdrawn, it is cost-effective. But the fact is the lender charges a monthly interest rate on the availed amount. When you compare the interest payable on a line-based loan to that for other types of unsecured financing, you will discover that it is more expensive.
Also Read: Can A Personal Loan Help You Improve Your Credit Score?
Given that personal lines of credit function similarly to credit cards, and are both examples of revolving credit, distinguishing between the two products is critical to avoid confusion.
Parameters | Personal Line of Credit | Credit Card |
Suitability | This loan is ideal for large-ticket purchases or recurring business expenses. | Credit cards are suitable for meeting daily expenses such as fuel costs, grocery payments, and so on. |
Loan amount | The credit limit offered under this loan is higher than the credit cards. | Credit cards typically have a lower limit. |
Interest rate | This loan type has lower interest rates than credit cards. | Credit card bills carry a monthly interest rate of 2%-4% if not paid on time. |
Accessibility | A personal line of credit is slightly more difficult to obtain than a credit card. | A credit card has simpler eligibility criteria. |
Also Read: Personal Loan or Credit Card Which one would you go for
Since both loan products sound similar, it is natural for many people to become confused about them. Here is a table highlighting the distinctions between personal loans and lines of credit.
Parameters | Personal Loan | Personal Line of Credit |
Suitability | This loan is ideal for meeting any small or large expenses. People mostly apply for personal loans to cover wedding expenses, medical bills, home renovations, and debt consolidation. | You can use this loan to cover large recurring expenses such as raw material purchases, office utility bills, healthcare charges, etc. |
Interest rate | You must pay the interest rate on the entire amount disbursed to your account. | Only the withdrawn amount is subject to interest payment. |
Accessibility | You will need to reapply for this loan once you have paid off the entire amount. | When you begin making EMI payments, your credit limit is restored to the extent that the principal amount is repaid. |
Personal loans and lines of credit have the following two things in common:
Both loan products can be availed without providing any collateral.
The basic requirements for both these loans are the same. You can get any of these loan products if you have never defaulted on a loan before and have a stable income.
Personal loans are better than a line of credit in many ways. You can use the entire amount of personal loan without worrying about your credit score dropping. On the other hand, your credit score will be negatively impacted in case your amount withdrawn exceeds 30% of the total line of credit limit. Furthermore, the interest rate charged under the personal loan is determined by your credit history. It means that if you have a steady income and employment, you can secure a low personal loan rate of interest. However, if you choose to go with a personal line of credit, the lender will levy a monthly interest rate.
A personal line of credit is an unsecured revolving loan that allows you to withdraw funds at regular intervals or all at once. However, the lender charges a monthly interest under this loan, which may put a strain on your budget. In this case, the best and most cost-effective alternative for your funding requirements is to apply for a personal loan. If you’re wondering can I get loan on salary, the answer largely depends on your income, credit score, and repayment history.
Hero Fincorp offers a wide range of financial products including Personal Loans for personal needs, Business Loans to support business growth, Used Car Loans for purchasing pre-owned vehicles, Two-Wheeler Loans for bike financing, and Loan Against Property for leveraging real estate assets. We provide tailored solutions with quick processing, minimal paperwork, and flexible repayment options for smooth and convenient borrowing experience.