Line-based personal loans (revolving credit) explained—who should use them and how interest really works

Sometimes, you don't need a huge lump sum loan. What you really want is access to money when you need it. Kind of like a tap you can turn on and off.

Believe it or not, such a tap does exist in the world of finance! And they're known as line-based personal loans, aka personal line of credit (PLOC), aka revolving credit. They're a flexible, practical, and cost-effective option when used wisely. Let's understand these better.

What is a Line-Based Personal Loan?

A line-based personal loan is like having a pre-approved pool of funds that you can dip into whenever needed. Instead of receiving the entire loan upfront, you withdraw only the amount you require, as many times as you want, up to your approved limit. You pay interest only on the money you use, not the full sanctioned amount.

Think of it as the middle ground between a personal loan and a credit card, minus the confusion.

Key Features of a Line-Based Personal Loan

Line-based personal loans bring flexibility to the otherwise rigid world of borrowing. Here's what makes them stand out -

• Flexible withdrawals – Access funds anytime, in parts or in full, within your approved credit limit.
• Cost-effective usage – Pay interest only on the amount withdrawn, not on the sanctioned limit.
• Rolling repayment – Similar to credit cards, you can repay what you use and free up the limit again.
• Minimum payment requirements – Some lenders allow you to pay just the minimum due, though repaying faster saves interest.
• Interest rates and fees – Rates are usually lower than those of credit cards, but may vary by lender. Processing fees may apply.
• Impact on credit score – They work similarly to personal loans and credit cards. Make timely payments, and your credit score will improve. On the other hand, delays can hurt it.
• Fixed tenure – The line of credit is available for a pre-set time period, typically 1–5 years.

Pro Tip - Before applying for a line-based personal loan, use an online EMI calculator to know your monthly commitments.

Who Should Opt for a Personal Line of Credit?

A line-based personal loan works best for -

• Professionals and salaried employees tackling unexpected expenses
• Small business owners in need of short-term working capital without committing to a large lump sum loan
• Borrowers consolidating debt who want flexibility in repayment
• Anyone unsure of exact borrowing needs but wants money accessible as a safety net

How Does a Revolving Credit Work?

Here's how it plays out in practice -

Imagine Rohit, a salaried professional. He has a ₹3,00,000 line-based personal loan approved.

• Month 1: He withdraws ₹1,00,000 to fund home repairs.
• Interest is charged only on ₹1,00,000, not on the entire limit of ₹3,00,000.
• Month 2: He withdraws another ₹50,000 for a medical expense.
• Now, the interest charged would be on ₹1,50,000. Again, not on the entire ₹3,00,000 limit.

Suppose the interest rate is 19% p.a. Here's an illustrative table of what the interest payable would look like:

This cycle continues until the end of his tenure. Each repayment frees up his credit limit, a bit like a refillable wallet. That's the beauty of revolving credit. You can borrow, repay, and borrow again without needing to apply for a new loan each time.

Borrow Smart, Borrow Flexible

Line-based personal loans are designed for people who value flexibility over rigidity. They're not for reckless spending but for smart, need-based borrowing. If you want structured solutions with transparency, Hero FinCorp's personal loan offerings can help you access funds with ease, whether as a lump sum or a flexible line of credit.

Frequently Asked Questions

How is a line-based personal loan different from a personal loan?

Think of a personal loan as a one-time payout; you get a lump sum and start paying fixed EMIs. A line-based personal loan works more like a "credit bucket." You dip into it when you need, repay, and dip again, all within your approved limit.

What is the difference between a line-based personal loan and a credit card?

Credit cards are handy for swipe-and-go spending, but usually sting you with higher interest rates. A line-based personal loan is friendlier for bigger expenses. It often comes with lower interest rates and higher limits, without the temptation of small impulse purchases every other day.

Do I need collateral for a line-based personal loan?

No. These loans are unsecured, meaning you don't need to pledge your house, gold, or FD.

Disclaimer: The information provided in this blog post is intended for informational purposes only. The content is based on research and opinions available at the time of writing. While we strive to ensure accuracy, we do not claim to be exhaustive or definitive. Readers are advised to independently verify any details mentioned here, such as specifications, features, and availability, before making any decisions. Hero FinCorp does not take responsibility for any discrepancies, inaccuracies, or changes that may occur after the publication of this blog. The choice to rely on the information presented Here is at the reader's discretion, and we recommend consulting official sources and experts for the most up-to-date and accurate information about the featured products.