A personal loan and a line of credit may seem similar. However, it is important for a borrower to not confuse one for the other. Here are the basic differences between the two.

If you are in the process of applying or have previously applied for a personal loan, you must have come across the term ‘line of credit’. The line of credit is a facility provided on a personal loan that enables you to withdraw only the amount of money you need from the overall loan amount called a credit line. The facility also allows you to withdraw small amounts multiple times without the hassle of contacting your lender again and again. Since line of credit is part of a personal loan offering, the two tend to be confused for each other. In principle, however, Personal line of credit is one of the benefits of taking a personal loan that you may choose to avail. To make things clearer, here is a snapshot of the two concepts along with their advantages.

Features And Benefits Of Personal Loan

  1. It involves borrowing a fixed sum of money and paying interest on the total sum borrowed.
  2. It is ideal for those who seek to borrow money in one single shot and have no recurring financial needs.
  3. The application process is online and easy, and requires submission of documents like application form, salary slips, etc.
  4. A firm limit on the financial sum ensures that you do not end up borrowing more than you can repay.
  5. You have the leeway to make part prepayment of a personal loan, but these may incur some charges.
  6. A personal loan can be used for any purpose such as home renovation, financing a wedding, purchasing your dream vehicle, going on a vacation, funding your child’s education, use for a medical emergency, etc.
  7. It doesn’t require you to calculate or monitor how much you are borrowing from your lender.
  8. You have to pay a fixed rate of interest on the loan and your EMIs contain a mix of your principal and interest.

Also Read : How does a Personal Loan Work - The Ultimate Guide for You

Features And Benefits Of Line Of Credit

  1. Line of credit gives you a credit line and allows you to borrow as much money as you wish to, based on your financial needs.
  2. There is no limit on the amount or number of withdrawals you make up to the credit limit. You can borrow money frequently or periodically, based on your financial needs.
  3. You can use a line of credit if your expenses are uncertain, recurring or inexact.
  4. You only pay interest on the borrowed amount and not the whole amount in your credit line.
  5. Prepayment of a line of credit is easy and involves no charges.
  6. It may require you to monitor and keep track of how much you are borrowing.
  7. A line of credit is highly flexible. It allows you to prepay an amount and re-avail the prepaid amount.
  8. It allows you to manage your cash flows better since it only charges the interest component as EMIs.

Also Read : Everything You Need To Know About A Personal Line Of Credit

Now that you know the difference between a personal loan and a line of credit, you can easily determine whether you need the latter to meet your needs or a personal loan of a fixed amount is better suited to your financial situation and needs. You can instantly apply for a Personal Loan at Bajaj Finserv. Here you will have your loan processed instantly and also gain from affordable interest rates and loan amount up to Rs.25 lakh.

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