A line of credit is a flexible loan that banks provide to people with good credit histories. A line of credit enables people to borrow money up to a specified limit. You might be wondering why a person with good credit would require a loan.
The answer is that even individuals with excellent credit histories occasionally run into situations where they need quick access to money. In these cases, a line of credit can be useful. Let’s take a closer look at this financial term.
A Line of Credit is What?
An unsecured personal loan in the form of a line of credit (LOC) enables you to take out loans as needed. Repay these and take out more loans without needing to meet the requirements for new loans. Usually, when you borrow money from your credit line, interest starts to mount.
The sum of all of the minimal payments you are required to make will be refunded to the designated line of credit as soon as you complete them. Following the conclusion of your draw term, you can start the repayment schedule, which will provide you with some extra time to settle any outstanding debts. But paying the minimum amount due could wind up costing you more in interest over time.
What Distinguishes Personal Loans from Credit Lines?
First, let’s talk about borrowing money. Typically, you apply for a personal loan instantly. After being accepted, you get paid all at once. Regardless of when you spend money, you have to start paying interest right away.
The functioning of a line of credit is comparable. It provides you with a fixed amount of money that you can take out on credit as needed. But until you begin borrowing, interest is not charged to you. We’ll be focusing on lines of credit in this post because they are normally unsecured, meaning you don’t need any kind of collateral as security.
A High Credit Score is Essential To Apply for a Line of Credit
You might be able to get approved for a line of credit with a reduced annual percentage rate if you have better credit. Certain credit lines also include borrowing caps and other charges, including an annual fee.
You will have a predetermined window of time to take out cash from the bank after your line of credit application has been accepted. The bank may give you a special cheque, or a card, or send the money to your banking account when you’re ready to borrow money.
Personal Loans
A personal loan entails a set sum of money that must be repaid within an agreed-upon time. At the time of taking out loans, the amount to be paid back is also specified. Secured financial products are not personal loans.
The Best Personal Loan Offers in 2024
| Lender | Min Salary (₹/month) | Loan Amount (₹) | Loan Tenure (Months) | Interest Rate (p.a.) | CIBIL Score | Processing Fees |
| Paysense | 20,000 | 50,000 – 10,00,000 | 6 – 60 | 18% – 22% (Reducing) | 700+ | 2% – 5% |
| Werize | 12,000 | 30,000 – 5,00,000 | 12 – 36 | 15% – 22% (Flat) | 650+ | 3% – 5% |
| Money View | 15,000 | 5,000 – 5,00,000 | 3 – 60 | 17% – 36% (Reducing) | 650+ | 1% – 5% |
| IDFC Bank | 20,000 | 1,00,000 – 40,00,000 | 12 – 60 | 10.49% – 22% (Reducing) | 700+ | 1% – 4% |
| Incred | 15,000 | 50,000 – 10,00,000 | 24 – 60 | 16% – 33% (Reducing) | 650+ | 1% – 5% |
| Aditya Birla | 20,000 | 1,00,000 – 50,00,000 | 12 – 84 | 12% – 28% (Reducing) | 650+ | 1% – 4% |
| Finnable | 20,000 | 50,000 – 10,00,000 | 12 – 60 | 16.95% – 30% (Reducing) | 700+ | 1% – 5% |
| Hero Fincorp | 15,000 | 50,000 – 10,00,000 | 12 – 60 | 9.5% – 16% (Flat) | 700+ | 1% – 5% |
| Muthoot Finance | 20,000 | 1,00,000 – 7,50,000 | 12 – 60 | 14% – 22% (Reducing) | 685+ | 1% – 3% |
| Upward Fintech | 20,000 | 25,000 – 5,00,000 | 6 – 36 | 18% – 32% (Reducing) | 650+ | 2% – 5% |
| Cashe | 12,000 | 10,000 – 4,00,000 | 4 | 1.5% – 3% (Fixed Monthly) | 550+ | 1.5% – 2% |
| Finzy | 25,000 | 1,00,000 – 10,00,000 | 6 – 36 | 10.99% – 18.99% (Reducing) | 700+ | 1% – 3% |
| Fibe (EarlySalary) | 15,000 | 8,000 – 2,00,000 | 3 – 36 | 15% – 30% (Reducing) | 550+ | 1% – 2% |
| Faircent | 25,000 | 50,000 – 10,00,000 | 3 – 36 | 25% – 30% (Reducing) | 700+ | 7% – 9% |
| Stashfin | 20,000 | 5,000 – 5,00,000 | 9 – 36 | 2.45% – 4% (Fixed Monthly) | 725+ | 2% – 2% |
| Tata Capital | 25,000 | 75,000 – 25,00,000 | 12 – 60 | 10.5% – 14.25% (Reducing) | 720+ | 0.75% – 2% |
| Standard Chartered Bank | 50,000 | 1,00,000 – 1,00,00,000 | 12 – 60 | 11.49% – 20% (Reducing) | 740+ | 1% – 3% |
| Bajaj Finserv (Prime) | 38,000 | 1,00,000 – 35,00,000 | 12 – 84 | 13.5% – 15% (Reducing) | 685+ | 0.5% – 1.5% |
| Axis Bank | 25,000 | 1,00,000 – 40,00,000 | 12 – 60 | 11.15% – 16.25% (Reducing) | 690+ | 1% – 4% |
| ICICI Bank | 40,000 | 1,00,000 – 1,00,00,000 | 12 – 72 | 10.5% – 15% (Reducing) | 700+ | 0.5% – 1.5% |
| Fullerton | 25,000 | 1,00,000 – 25,00,000 | 12 – 60 | 14% – 32% (Reducing) | 705+ | 1% – 3% |
| HDFC Bank | 25,000 | 1,00,000 – 1,00,00,000 | 12 – 72 | 10.25% – 16% (Reducing) | 700+ | 0.5% – 1.5% |
| Shubh Life | 12,000 | 5,000 – 2,00,000 | 3 – 24 | 28% – 44% (Reducing) | 650+ | 1% – 3% |
| Loan Tap | 12,000 | 50,000 – 7,00,000 | 12 – 36 | 11% – 24% (Reducing) | 675+ | 1% – 2% |
| Kreditbee | 16,000 | 1,000 – 3,00,000 | 1 Day – 4 Months | 1.5% – 3% (Fixed Monthly) | 550+ | 5% – 6% |
| FlexSalary | 8,000 | 4,000 – 2,00,000 | 6 – 60 | 1.5% – 3% (Fixed Monthly) | 550+ | ₹300 – ₹750 |
| mPokket | 9,000 | 500 – 30,000 | 1 Week – 4 Months | 2% – 4% (Fixed Monthly) | 550+ | ₹50 – ₹200 |
| Moneywide | 20,000 | 10,000 – 3,00,000 | 3 – 36 | 17% – 24% (Reducing) | 650+ | 1% – 3% |
| Insta Money | 15,000 | 5,000 – 25,000 | 1 – 6 | 13% – 36% (Reducing) | 650+ | 1% – 4% |
| Kotak Bank | 25,000 | 1,00,000 – 50,00,000 | 12 – 60 | 10.75% – 22% (Reducing) | 705+ | 0.75% – 2.5% |
| Cholamandalam | 20,000 | 1,00,000 – 35,00,000 | 6 – 60 | 14% – 22% (Reducing) | 675+ | 1% – 3% |
| SBM | 20,000 | 50,000 – 25,00,000 | 6 – 60 | 14% – 20% (Reducing) | 700+ | 1% – 4% |
Comparing Personal Loans vs. Personal Lines of Credit
To learn the distinction between a personal loan and a line of credit, review the following guidelines:
- Lenders conduct a thorough background check when you apply for any of these loans.
- Lenders will review your credit report to determine your loan eligibility.
- Interest is a cost associated with both personal loans and personal lines of credit.
- Compared to other options, such as home equity loans, they carry a slightly lower risk.
Differences
- Cash Distribution: A credit card functions a little differently from a personal line of credit. It has a credit limit at all times and increases interest on any amount that is outstanding. You can receive cash, but you still have to make the required monthly payment. A personal loan, on the other hand, provides you with the entire sum at once. Following that, you will make fixed monthly instalments to repay the loan balance.
- High interest rates: As personal lines of credit have higher interest rates, both the borrower and the lender assume more risk.
- Rates of Interest : You frequently have to make payments of interest on any funds you borrow when you take out a personal loan. Usually, there will be a predetermined interest rate.
The primary factors influencing interest rates on personal loans are an individual’s credit score and credit history. People with good credit may be eligible for average rates that are just over 4%. People with poor credit may be required to pay up to 25% extra.
With lines of credit, you might have greater flexibility, but the cost is typically higher. Additionally, after the loan is accepted, the interest rate increases, unlike with personal loans. As soon as you spend any available funds on a line of credit, interest should be paid. Furthermore, credit line interest rates are variable and subject to change.
How Will You Pick the Best Option?
Determine your financial needs before deciding between a personal loan and a personal line of credit. Every loan package offers advantages, so you should select the one that most closely matches your requirements.
If you’re unsure of the amount you need to borrow, a personal line of credit can be your best option. It functions best for unforeseen expenses, such as an urgent medical situation or an unplanned home repair. You only pay interest on the portion of the credit limit that you use, just as with a credit card. Remember that personal credit line interest rates fluctuate over time.
Both the amount of monthly payments and the potential interest rates are subject to change.
The interest rates on personal loans, however, are set. Knowing the exact amount you have to pay makes money management easier. Large, once-only costs are frequently a suitable fit for personal loans.
Bottom Line
Although they function differently, personal loans and credit lines are both forms of borrowing money. You may always access money with a line of credit. Conversely, personal loans provide you with a fixed monthly payment in addition to a lump sum. Be diligent while deciding how best to take out money to pay off debts.
Although personal loans and credit lines function in different ways, you can obtain money quickly with both. While a line of credit is a form of revolving credit that can be drawn upon when necessary, personal loans are granted in lump sums.
It’s crucial to keep in mind that timely reimbursement is required for both kinds of financing.
Making an approximate repayment schedule for the loan and checking if it fits within your budget would therefore be a good option.
To learn the distinctions between a line of credit and a personal loan, check different lenders. Additionally, you can browse Refer Loan’s educational blogs and see the range of products and services that they provide.