A personal loan and a line of credit both are good credit support when you are stuck in a cash crunch. You can apply online for a line of credit or a personal loan and meet your financial requirements immediately. Now, you must be wondering if both the options are good what is the difference between them and which is a better alternative for you? Let’s understand the answers to both questions and see how can you meet your financial requirements better and faster.
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Is it easier to get approved for a personal line of credit or a personal loan?
A personal loan is an instalment loan where a lumpsum amount is credited to your account. You repay this loan in EMIs over a fixed period, which includes a part of the principal amount borrowed and interest applied. The interest on a Instant Personal Loan is calculated on the total withdrawn sum and distributed into the EMIs. Gradually the interest decreases while in the initial years it amounts to be higher since the lender tries to cover the cost of the loan faster as early as possible. Sometimes, the interest is calculated at a straight-line method where it remains the same throughout the tenure of the loan.
Line of Credit:
A line of credit is an instant credit help where a credit limit is approved on your account. You can keep using the money out of this credit limit. The interest in a credit line is calculated after you use the money and on the used sum only. Repayment of the dues is variable in a line of credit, you pay as you use.
Differences Between a Personal Loan and a Line of Credit:
- Nature: A personal loan is one-time credit support that is given with a condition to repay over time added with the interest. While a line of credit is revolving credit support that you can use, payback and use again based on your needs.
- Type: A personal loan can be secured if you keep collateral for its approval while unsecured which you get based on your income and or credit history. Whereas a line of credit is often unsecured and in very rare cases it’s given against collateral. Although it can be either a personal credit line or a business line of credit which is segregated based on its purpose.
- Interest rates: In a personal loan, the interest is calculated on the total sum borrowed often at a fixed rate for a fixed period. Albeit on a line of credit, the interest is charged only when you use the money out of the approved credit limit. In the case of the sitting ideal, no interest is accrued on a credit line.
- Interest accrual: In a personal loan, the interest is calculated on the total credit approved irrespective of the use. But in a credit line, the interest is charged only when and on you borrow the sum out of the approved credit limit.
- Credit Score: Credit score is crucial for taking a personal loan as it impacts the rate of interest directly. The better the CIBIL score the lower the rate of interest up to an extent will be and vis-a-versa. While a line of credit is often observed as a credible alternative for a low or bad credit score.
Deciding Factors for Which Option is Better, A Line of Credit or A Personal Loan:
- Type of Monetary Need: The straight answer for this could be, to go for a personal loan if you need the money in bulk to make some one-shot payment. While a line of credit is better when you need continuous credit support making it perfect for discrete expenses. The accrual of interest is its main reason since you have to start paying the interest from day one in a personal loan irrespective of the money used. But, in a line of credit, you pay the interest variable as the money used. A line of credit can also be used for bigger payments as you can utilise your total credit limit in one as well.
- Repayment Capacity: Repayment of a personal loan is done in EMIs over a pre-decided period. In case of failure or default in repayment, penalties or additional charges are involved affecting adversely your credit score. Hence you must go for a personal loan only when you are sure of paying every fixed EMIs without default in repayment.
In a credit line, you can pay back as variably as possible for you only after using the money. No penalties or fees are added in case of gaps in repayment as long as you pay the minimum due thus posing no impact on our credit history. The instalments of a line of credit are also considered easier because you pay when you use it. Instalments are not fixed, hence you can pay back in parts that suit you without disturbing your monthly budget.
You can go online for taking both, a personal loan and a line of credit. Many Banks and NBFC-backed lenders are available online that extend both these credit helps. You can choose one and borrow the amount you need. If you are a salaried employee and need to borrow a line of credit going with FlexSalary can be a suggested option for you.
It extends the line of credit as a loan on salary just based on your salary slip and bank statement and or after a soft credit pull. This comes with flexible repayment options along with the flexible tenure of 3 to 36 months in which you can repay your dues at any time without any additional charges or penalty at all. Renewal of the credit limit at flex salary is also easy even after part repayment. This is a 100% online and instant credit facility for salaried people.