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Personal line of credit and Personal loan: Are they both the same?
Whenever there are unexpected expenses, borrowing money seems the smartest solution. Among all the formal borrowing options, two commonly used options are personal loans and personal lines of credit. Both these options provide funds to the borrower, but they differ in aspects like structure, repayment, and suitability. In this blog, we will understand these differences and also help you choose the right option for your borrowing needs.
If you are considering borrowing options, the Fintech app Rupee112 can provide you with personal loans with competitive financial costs and flexible repayment options.
What is a Personal Loan?
A Personal loan refers to when you borrow a particular sum from a lender and then pay it back in equal monthly amounts over a period of time. It will incur financing costs and other charges.
What is a Personal Line of Credit?
This is a flexible borrowing option in which the borrower is pre-approved for a credit limit and can use it as required. In short, the borrower just had to bear the financing costs on the amount used, not the full credit limit, as with a personal loan. It is a good option for ongoing or variable expenses.
Differences between a Personal Line of Credit and a Personal Loan:
Personal Loan | Personal Line of Credit | |
Disbursal of Funds | The full sanction gets disbursed at once to the chosen amount. | You can withdraw funds up to an approved limit as and when required |
Purpose | Funding comes with no restriction on end use, i.e. you can use the amount for almost every need | You can use the funds for the specific purpose you have applied for, like a student line of credit or a business line of credit |
Financing Costs | Financing costs are calculated for the entire borrowed amount | Financing costs arise only on the amount being utilised and not the whole amount |
Repayment Tenure | Generally, goes up to 5 years, but can be higher depending upon the lender | Depends on the usage and other factors, including the financial institution you choose |
When to go for a Personal Loan?
You should opt for a personal loan if:
You require a large sum at once for a particular expense, such as a wedding, medical emergency, or home renovation
Fixed financing costs and regular monthly payments are your preference
You want a structured repayment plan to clear your loan within a pre-defined timeframe
Lenders like Rupee112 offer personal loans that cater to the diverse financial needs and provide a seamless borrowing experience.
When to opt for a Personal Line of Credit?
A personal line of credit is preferable when:
You have expenses that are highly varying in nature, such as unexpected medical bills or costs that vary with seasons in your business
You want to have an option to take out the money whenever required
You are good at sticking to a repayment plan and can handle changes in financing costs