Six Key Distinctions Between Personal Loans And Credit Lines

You might need a loan at some point in your life for a variety of factors. These are accessible from lending organizations. With a variety of options at hand, borrowing money is both legal and convenient. The Line of Credit is another solution, even if obtaining a personal loan can be the first thing that springs to mind in such situations. These are practical and safe ways to borrow money from a reputable lender. They are also quick and easy.

What is a personal loan?

A one-time borrowing for a variety of expenses is a personal loan. You can use it to pay for things like a wedding, a vacation, a medical emergency, house upgrades, etc. You can pay off your current debts with a personal loan as well. Also, you can use the money from a personal fast loan to pay off the existing debt by submitting an online application. Calculating your loan’s monthly installments is straightforward with an online personal loan interest rate calculator.

You may plan your loan and repayment more effectively by organizing your installments using the personal loan interest rate calculator. You can easily apply for a personal loan online at any time and from any location.

What is a line of credit?

A line of credit, often known as a LOC, enables someone to borrow money for personal purposes from a lender, although it is more flexible than a personal loan. Up to a predetermined amount, a line of credit enables borrowers to borrow money in accordance with their needs. This credit limit can be subject to security. Since the borrower can decide when and how much to withdraw at their convenience, it is more flexible. A borrower can choose to borrow much less than the predetermined amount, with the resulting interest rate adjusting correspondingly. Additionally, the borrower has the option of making partial or full repayment of the loan.

If you are unable to decide between them, the distinctions are listed below.

Disbursal type

The main distinction between a personal loan and a line of credit is the mode of disbursement. A line of credit is more flexible, but a personal loan is a one-time transaction in which the entire amount is transferred into the borrower’s account in one lump payment. After a LOC has been approved, you have access to it up to a predetermined maximum amount at any time. The draw period for a line of credit is also predetermined. However, you can prolong this time frame by increasing your credit limit.

A line of credit, as opposed to a personal loan, might work like a credit card because it is dispersed.

The interest rate

The fact that the interest rate is reduced when the loan is gradually repaid is a key advantage of using a line of credit. Interest rates for personal loans and credit lines are varied. The interest payable on a personal loan is applied to the entire quantity because it is given in one lump sum. A credit line, however, enables variable disbursement, so interest is only charged on the amount actually withdrawn.

However, the interest rates for personal loans are often lower than those on lines of credit. Because it is more flexible, it frequently has higher interest rates. 

Qualification criteria

Qualification standards may also change because personal loans and lines of credit have different features. While you can quickly submit an online application for a quick personal loan, a line of credit can call for another account and more documents.

The borrower’s credit score must be greater than 700 in order to qualify for a line of credit, and their debt-to-income ratio must be appropriate. The borrower will be required to present income documentation to guarantee the lender of repayment.

You may check your credit score for free on the websites of reputable lenders before applying for a personal loan or a line of credit because it affects your personal loan eligibility and interest rates.

How do you apply?

While many of them may be simple to apply for, the main factor in a personal loan application is figuring out your needs. You get a lump payment after requesting an instant loan online, so you should be aware of your financial needs before applying. Once the loan has been granted, the amount that has been disbursed cannot be changed.

You must produce a document or other kind of collateral throughout the application procedure to be eligible for a loan against it. A line of credit does not require a specific sum of money because it is a flexible method. Throughout the course of the contract, you are free to withdraw if you change your mind.

Credit limit

The complete amount of a personal loan is placed into the borrower’s account all at once, thus there is no further cap. But a line of credit has a cap based on the security (such as a fixed deposit or something comparable) used to establish the limit.

Repayment procedure

Personal loans must be repaid according to the loan agreement’s terms and within the allotted time frame. The total loan amount and the interest rate determine how much will be paid each month. Online EMI calculators are available. Your desired personal loan may have a range of EMIs.

On the other hand, a line of credit allows for straightforward repayments. The principal amount is more forgivingly repayable, but you must pay the interest on time each month to avoid penalties.

A line of credit offers more flexibility for continuing projects requiring fluctuating investments, even though a personal loan is more reliable. When you don’t have a cost estimate, a line of credit can be your best bet. However, if you are certain of your needs, a personal loan is more practical.


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