Credit Lines vs. Personal Loans: Which One Suits Your Needs?
We often find ourselves in need of extra funds. This could be for various reasons, be it home renovations, medical expenses, or sudden travel plans.
In such situations, we may look at financing options like credit lines and personal loans to fund our requirements. But how do you decide which one of these is right for you? In this blog, we will dive into the details and compare credit lines and personal loans to help you make an informed decision.
What is a Credit Line?
A credit line, or line of credit, is like a financial safety net that is always available when you need it. It is a form of borrowing where you can access funds up to a predetermined credit limit set by the lender.
What is a Personal Loan?
A personal loan is a lump sum amount that you can borrow from a bank or other financial institutions like CASHe and repay the amount in fixed instalments over a specified period. Unlike a credit line, here you will receive the entire loan amount upfront.
Personal Loans vs. Line of Credit
To understand which of the two is right for you, we must start by comparing credit lines and personal loans based on the following factors:
With a line of credit, you have the flexibility to borrow multiple times from the lender, as long as you stay within your credit limit. On the other hand, in personal loans, you cannot borrow more from the same personal loan once the loan amount is disbursed to your account, and you have started repaying it.
When it comes to interest rates, personal loans usually have fixed rates. This means your EMI for the personal loan remains the same throughout the loan repayment tenure. On the other hand, credit lines generally come with variable interest rates.
Access to Funds:
With a credit line, you have ongoing access to funds within your approved credit limit, without having to reapply each time you want to borrow. However, with personal loans, you get the entire loan amount at once.
Credit Lines or Personal Loans- Which One is Better?
The answer to this question will depend on your needs and preferences. If you are someone who likes to have a secure cushion for unexpected expenses, a credit line might be a good option for you. Here, you will have funds readily available whenever you need them. On the other hand, if you have a specific need in mind, like a home renovation or a dream vacation, you can avail a personal loan that provides a lump sum which you can use for that purpose.
Your choice between a credit line and a personal loan also depends on your risk tolerance. If you are comfortable with the possibility of interest rate fluctuations, a credit line’s variable interest may not be a big concern for you. But if you prefer stability and want to plan your budget with fixed monthly payments, a personal loan might be better for you.
Both credit lines and personal loans have their pros and cons. Hence, when making a choice between the two, you must consider your current needs and your future plans. Whether you opt for a flexible credit line or a stable personal loan, you should remember that proper financial planning is the key to a secure and successful future.