We live in a world that is constantly evolving basis needs that are essential and not defined by age or profession. According to Forbes, an average Indian earns anywhere between INR 8,000 to INR 1,43,000 (monthly). Do you think needs are confined to monthly salaries? Not really. Financial emergencies or needs make an individual opt for banking services like loans. Let’s now understand how line of credit is better than a personal loan with an example.
Understanding Line of Credit
The first question that might have popped up in your head would probably be ‘What is a Line of Credit’? The answer is simple. A line of credit is offered by a bank or financial institution allowing an individual to withdraw money/funds intermittently as and when required within the limit. It is a practical combination of features of both a personal loan and a credit card. Instant line of credit can be considered the best available financial assistance option when compared to traditional options.
What is a Personal Loan?
A loan offered by banks or financial institutions to customers without collateral or security. The funds from a personal loan can be used for any kind of financial needs you might have like buying a gadget, education, hospital bills, trips/holidays, etc. just like a line of credit. Personal loan also is a popular option among people as it is not like other specific loans for a home or a car.
Line of Credit vs. Loan
Now that you have understood what a line of credit and a personal loan are, let’s understand the basic differences between them. Here’s an example – Suppose A has a line of credit worth ₹5,00,000 while B has taken a personal loan for the same amount. Now, we will analyze how a line of credit can be advantageous with agreeable benefits and turns out to be better than a personal loan.
Convenience: A line of credit allows an individual to withdraw/borrow funds within the limit once or multiple times as needed whereas a personal loan lends the lump-sum amount to a borrower in one go. The process is completely digital with no interventions and no physical documentation. As per the example given above, A can withdraw INR 25,000 once and INR 20,000 later as and when required within the total limit. B on the contrary, has access to the entire amount, no matter if the requirement is now or later.
Repayment: Line of credit customers have to repay only the outstanding balance as and when borrowed while personal loans offer funds with instalments that need to be paid within a fixed time limit. Basis the example, if A’s loan credit is INR 25,000 from the lump-sum then the repayment needs to be done on the amount withdrawn only but B still has to repay the entire amount of INR 5,00,000 within the timeline.
Rate of Interest: Interest rates for line of credit may vary depending on market conditions and is charged only on the amount borrowed but personal loans are offered on a fixed interest rate applicable on the entire amount. So, the interest rate is applicable to INR 25,000 if A withdrew the same, however, the interest rate is applicable to the entire amount offered to B.
With an increase in expenses, making the most of your money is not an easy task. In this blog, we have discussed both line of credit and personal loan along with their differences. To conclude, a line of credit is the best option for any sort of financial assistance as it offers convenient borrowing, flexible repayment options and the interest is charged only on the amount withdrawn. Users should especially take note that over-borrowing can lead to the accumulation of debt and a poor credit score. Try to understand the pros and cons of every financial service extended to you for a better experience.
If you’re looking for an all-in-one banking app with an instant line of credit, try INDIE by IndusInd Bank. INDIE offers a credit line up to ₹5,00,000 with the facility of multiple withdrawals. You can choose to repay in convenient EMIs ranging from 3 to 36 months.
INDIE also comes packed with industry-first security features like Numberless Physical Debit Card, Dynamic PIN, Super OTP, etc. that lets you bank freely and conveniently. Moreover, you can earn high interest rates on Savings Account and FD.
Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.
