Line Of Credit Vs. Personal Loan- What Should I take?

Though there’s a thin line of difference between a personal loan and a line of credit, you need to understand these better before jumping on to decide which is better.

 

What is a Personal loan?

A personal loan, also termed an unsecured loan, is the amount a borrower lends from a bank or an NBFC without any collateral or guarantee. The lender screens the applicant’s loan application, income documents and assesses his creditworthiness to determine his chances of loan approval.

 

The best thing that works beautifully favoring a personal loan is no restriction on its end-use. A personal loan can be utilized for financial emergencies, medical difficulties, weddings, travel, education, debt consolidation, and more (except for betting and illegal activities).

 

Research and compare to find a lender offering the best personal loan in India that matches your specific needs.

 

What is a Line of Credit?

 

A line of credit is a continuing amount of money that an individual or an organization borrows at any time and pays it back without applying for a second loan. In the case of an open line of credit, the money can be taken out as required until the maximum limit is reached, and as money is repaid, it can be loaned again.

 

How do they work?

 

Depending on your situation, both a personal loan and LOC can help you achieve your financial objectives. However, while both finance methods might provide you with the funds you need, they operate in quite different ways.

 

A personal loan can vary from a line of credit in that you borrow a defined amount of money and return it over a certain period with a predetermined payment amount called EMI. When you’re approved for a personal loan, the amount is immediately paid out to you in a lump sum, and you’re expected to start paying the EMIs right away, regardless of the time of using the personal loan amount.

 

On the other hand, lines of credit can provide you with more borrowing options. For example, you can borrow up to your credit limit, repay the amount, and borrow again as needed with a line of credit.

 

Personal loan requirements laid out by any lender are pretty basic and are easy to fulfill by borrowers. A bank statement showing income credit, stable monthly income, good credit score, and a few KYC documents are all you need to avail a personal loan from any lender.

 

Interest rates of a personal loan vs. Line of Credit

 

A personal loan is offered at fixed interest rates. In contrast, the line of credit comes with variable rates that fluctuate over time, depending on the prime rate the organization provides you money. The best personal loan in India has competitive interest rates and suits a borrower’s needs.

When can Line of Credit be useful?

 

In general, a line of credit isn’t meant to cover one-time purchases like houses or cars, but it can be used to purchase products that a bank might not ordinarily underwrite a loan. A line of credit is generally taken out to manage the ups and downs of unpredictable monthly expenses or to fund projects when exact funding requirements are impossible to predict in advance.

 

Credit Line is more relevant in situations where:

  • Recurring financial deposits, but the amounts won’t be known ahead of time, and the merchants won’t accept credit cards.
  • Instances requiring a large cash deposit to be withdrawn SOS, such as a wedding.
  • A line of credit is frequently used to renovate or make home improvements.

When can a personal loan be beneficial?

 

A personal loan is apt to apply when you know the exact amount you will need. You can avail of a personal loan up to 30 times your monthly salary from any bank or NBFC. To avail of the best personal loan in India, ensure that you know the exact reason and amount of the loan you’re planning to avail of. Other reasons to avail of a personal loan might be:

 

  • You don’t have a good credit history to qualify for low-interest credit cards
  • Your borrowing sum is greater than the limit on your credit card
  • When it suits your needs and budgeting around, it is easy

 

In recent years, personal loan requirements have increased due to their affordability and competitive interest rates leading lenders offer.

 

Paying off Debt

 

Whether you choose a personal loan or a line of credit, be sure you have a strategy in place to pay them off. Therefore, you should only take debt that you can afford to repay, but if life intervenes and your capacity to repay your debt is jeopardized, seeking specialized guidance from a financial advisor can help you regain control of your financial health.

 

The bottom line is that if you can find out which financial product best suits your needs, you may save money while also simplifying your life.

 

If you take out a personal loan that is insufficient to pay the expenditures of a large project, you may have to borrow again. Unfortunately, this implies you’ll have to fill out another application and risk harming your credit due to the additional account and inquiry.

 

If you opt for a LOC when you don’t need it, you might end up paying more with the high-interest rate. The best personal loan in India will work in your favor if you work smartly with the interest rates.

 

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