Know the difference between a Personal Loan and a Personal Line of credit
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
- It involves borrowing a fixed sum of money and paying interest on the total sum borrowed.
- It is ideal for those who seek to borrow money in one single shot and have no recurring financial needs.
- The application process is online and easy, and requires submission of documents like application form, salary slips, etc.
- A firm limit on the financial sum ensures that you do not end up borrowing more than you can repay.
- You have the leeway to make part prepayment of a personal loan, but these may incur some charges.
- 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.
- It doesn’t require you to calculate or monitor how much you are borrowing from your lender.
- You have to pay a fixed rate of interest on the loan and your EMIs contain a mix of your principal and interest.
Features And Benefits Of Line Of Credit
- 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.
- 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.
- You can use a line of credit if your expenses are uncertain, recurring or inexact.
- You only pay interest on the borrowed amount and not the whole amount in your credit line.
- Prepayment of a line of credit is easy and involves no charges.
- It may require you to monitor and keep track of how much you are borrowing.
- A line of credit is highly flexible. It allows you to prepay an amount and re-avail the prepaid amount.
- It allows you to manage your cash flows better since it only charges the interest component as EMIs.
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.