Everything You Need To Know About A Personal Line Of Credit
Are you wondering what is a personal line of credit? A personal line of credit is a unique financial product where the lender extends a fixed amount of money to you, allowing you to withdraw as you please. You pay only the interest component as equated monthly installments (EMI) on the amount utilized, while the principal amount can be repaid as bullet payments at the end of the loan tenor. It is an unsecured line of credit and lenders such as Bajaj Finserv offer one to salaried persons living across more than 40 cities.
How does a personal line of credit work?
With a personal line of credit, you only pay the interest as your EMI on the loan availed. You can make a bullet repayment for the principal amount anytime you want and continue with your Line of Credit or convert it into a regular term loan after a year.
Consider this example. You approach a lender for a term loan of Rs.10 lakh and a line of credit of Rs.10 lakh. Here is how the repayment compares:
|Term Loan||Line of Credit|
|Tenor||60 months||60 months|
(Principal and interest)
|Rs.12,917 (Interest only)|
|Principal repayment||Part pre-payment||Part pre-payment + Bullet payment|
Since you are paying the interest component on only what you withdraw, and since you repay the principal as a bullet payment, you can end up paying up to 45%* lower EMI.
How is a personal line of credit different from a personal loan?
A personal loan is a standard loan where you avail a fixed amount of money in a lump sum and repay it over time through EMI. On the other hand, a personal line of credit is similar to a credit card where the lender sets a predetermined limit for the credit line and you can borrow money in small amounts as and when you need it.
How can I use a personal line of credit?
A personal line of credit can be very useful if you need to borrow money on an incremental basis, for example paying a contractor renovating your home. It’s difficult to predict the expenses involved in home improvement beforehand, which is why a personal line of credit is a handy tool at your disposal. It can also prevent you from overdrawing funds through your checking account when you have a variable income, or use an auto-pay feature and encounter an uncharacteristically large bill.
If you are thinking about opting for a personal line of credit, there are certain key elements you should be aware of. Take note of the following factors before narrowing down on the ideal Personal line of credit offer for you:
What is the interest rate for a Personal line of credit?
The usual interest rate for a Personal line of credit will be anywhere upwards of 14%. The rate you are offered will depend on your credit score, but a rate between 14% to 16% is generally considered a good deal. The good news here is that because you are repaying only the interest component as EMIs, your instalments can be as much as 45%* lower!
What credit score is needed for a Personal line of credit?
Your credit score is the single most important element a lender considers before granting you a Personal line of credit. It is the deciding factor when it comes to approving your application, and also when determining the rate, you will be offered. You will require a good credit score to avail a satisfactory Personal line of credit. While most other types of loans are offered by accounting for a variety of factors related to your finances, this loan is provided mostly on the basis of your credit score. The better your score, the higher your chances of securing a Personal line of credit and consequently a better interest rate. Ideally, you will require a CIBIL score of at least 750 to avail a decent personal credit line.
What is the eligibility criteria for a Personal line of credit?
Your eligibility criteria will determine whether you can apply for a Personal line of credit. This depends on a few basic requirements, such as:
- Your age should be between 25 years to 58 years.
- If you are a salaried professional, you should be an employee of either an MNC, public, or private company.
- Your salary should exceed the minimum bracket set for the corresponding city you live in.
- You should be an Indian citizen residing in any of the 30 cities the offer is available in.
- You can easily check your eligibility online with a Personal Loan Eligibility Calculator.
What are the documents required to apply for a Personal line of credit?
A Personal line of credit can be availed with minimal documentation. The only documents you need are:
- Your salary slips for the last two months
- Your salary account bank statement for the last 3 months
- Your employee ID card
- Any identity proof, like a passport, driving license, PAN card, etc.
- Any address proof, like a passport, driving license, or even your latest mobile bill
- Once you provide these documents, your application is ready to be processed.
What are the interest rates and charges associated with a Personal line of credit?
Most of the charges applicable on a Personal line of credit are the same as those on a standard personal loan. They include:
- A processing fee of 2.25% to 3% on the total loan amount
- A secure fee of Rs. 2,499 for online facilities
- An EMI bounce charge of Rs. 1,000 per bounce
- A penal interest of 2% per month
- Foreclosure charges of 4% plus applicable taxes on the outstanding principal
- Part prepayment charges of 2% plus applicable taxes on the part prepayment amount paid
- Annual maintenance charges of 0.25% on sanctioned amount
What are the minimum and maximum loan amounts that can be acquired with a Personal Line of Credit?
A Personal Line of Credit offers a wide range of available loan amounts to cater to any and all needs that you may have.
- Minimum amount is Rs.80,000
- Maximum amount is Rs.15 lakh
What is the tenor for a Personal Line of Credit?
The minimum tenor for a Personal Line of Credit is 1 year. However, you can always renew it after 12 months, or even convert it in to a term loan if you wish.
Can a term loan be converted to a Personal Line of Credit and vice-versa?
Yes, it is possible to convert a term loan to a Personal Line of Credit. In that scenario, your existing loan will be closed and a new loan will be booked for you under a new agreement.
And if you wish to convert your Personal Line of Credit to a term loan, you can send a mail to the customer service team, who will put a request on your behalf. After the procedure, your Personal Line of Credit will be converted to a regular term loan and your EMI will include the principal amount divided by tenor.
Can a Personal Line of Credit be blocked from usage?
There are certain scenarios wherein you will be stopped from availing the benefits of a Personal Line of Credit. They are:
- A bounce of your monthly installment
- A drop in your credit score
- A change in your employment status
- A change in your contact information, unless you notify the concerned authorities beforehand
What are the drawbacks of a Personal Line of Credit?
As with any monetary loan, a Personal Line of Credit needs you to plan ahead and be careful about your repayment. Although the benefits greatly outnumber the drawbacks of acquiring a Personal Line of Credit, remember the following points before applying for one:
- The interest rates are often higher than other those offered by secured loans
- They may be hard to qualify for unless your finances are robust
- They could spell trouble if you tend to overspend and don’t plan your EMIs efficiently
What are the benefits of a Personal Line of Credit?
A Personal Line of Credit can be an unmatched source of financing, provided you use it wisely. It comes with a host of benefits:
- You only have to pay the interest amount as your monthly installment. The principal component can be paid at the end of your tenor, which means you have the freedom to manage your finances better and in a more organized manner.
- You stand a chance to pay up to 45%* lower EMI.
- You gain access to a completely online process that allows you to keep tabs on the whole account. You are free to part prepay and withdraw according to your convenience.
- There is no limit on the number of part-prepayments you can make. Additionally, there are no additional charges for part-prepayment either.
- As with part-prepayment, there are no additional charges for a withdrawal or drawdown.
- There is a bullet repayment option at the end of the year.
- A Personal Line of Credit is an unsecured loan, which means you are not required to put up any collateral or security to obtain it.
- You can always convert to a term loan whenever you wish.
If you are looking for a Personal Line of Credit that offers maximum benefits and minimum effort from your side, Bajaj Finserv’s Personal Line of Credit is your best bet. Take the first step towards a richly rewarding experience.
How to avail a personal line of credit?
Applying for a Personal line of credit online is simple! Follow these four simple steps and apply for one easily.
Step 1: Click here to see the online form. Fill-in your details and submit the form
Step 2: Get approval instantly. Select your required loan amount and tenor
Step 3: A Bajaj Finserv representative will get in touch with you to collect your documents
Step 4: Find the money credited to your account!
How long does it take to take a personal line of credit?
Bajaj Finserv offers instant approval on personal loan and personal line of credit. This money is disbursed to your bank account in just 48 hours.
*Terms and Conditions Apply