Personal Loans vs Line of Credit - Which is Better

Everyone requires financial help at some point in their life. There are a lot of reasons why most people opt for a loan. Whether it be for your travel expenses, payment of bills or getting a new home. And there are a lot of loan options available for all kinds of financial requirements. Sometimes borrowing money for your personal needs is the best option, and it may even make the most financial sense. That’s when you’ll have to decide between a line of credit vs. personal loan options. To make the correct choice you first need to get a clear understanding of both the options and which one will be better for you.

Personal Loans vs Line of Credit

• Loan Amount

When you apply for a personal loan, you will receive the complete loan amount you applied for in your bank account. The loan amount remains with you whether utilized or not.

Whereas, in line of credit, you have a limit of borrowing money. The loan limit is decided by banks based on your credit-worthiness. The interest rate will be charged only on the funds you will use. Know more about how to get a personal loan.

Whereas, in line of credit, you have a limit of borrowing money. The loan limit is decided by banks based on your credit-worthiness. The interest rate will be charged only on the funds you will use.

• Interest Rates

The difference between a personal loan and a personal line of credit lies in the interest rate and its type. The interest rate on this loan is fixed and generally low. The interest rate on a line of credit is flexible depending on the prevalent rate of a loan.

• Repayment Period

The repayment period for personal loans is fixed, which is generally 1-5 years. Whereas, for the line of credit, the repayment period is flexible, as it will depend on the credits and the financial institutional policies.

• Secured or Unsecured Type

The line of credit can be both secured and unsecured. For the secured Line of credit, there is a low-interest rate because you have to put up collateral to get the credits. For an unsecured LOC, you are not required to provide any collateral.

Personal loans are unsecured loans, where you can get the funds without pledging any of your valuable assets as security for the loan.

When to Opt for a Personal Line Of Credit?

A line of credit from a bank or credit union is often used by workers who have a varied income, such as a salesperson who works on commission, or an independent contractor. A line of credit can also be a smart borrowing option when the total amount you will need is unknown, or when your costs will be ongoing. In such cases, where the pay can vary so much every month, there is a constant requirement of money. A line of credit offers funds to bridge any gaps in income that are available when required. The rate of interest will only be charged on the amount that is used.

When to Opt for a Personal Loan?

For one-time transactions, a personal loan can offer a better deal than a line of credit, along with a clearer repayment plan. To apply for this loan, you must know exactly how much money is required before applying for a loan. This way you can borrow enough money to cover your financial requirements, the loan funds are often used to cover expenses such as car repairs or emergency costs. Another common use of this loan is to consolidate or refinance other debts, such as higher-interest credit card debt. You can take the help of a personal loan calculator to get an estimate of the loan amount that is to be repaid every month.

How to Apply for Line of Credit?

The following are the steps to apply for Line of Credit (LOC)

Step 1: Fill the application for a line of credit in your bank

Step 2: The lender receives your application and sets your credit limit based on your credit history.

Step 3: Once it is set, you can withdraw a loan amount up to the specific loan limit. You can use the funds, return, and withdraw again if required.

How to Apply for a Personal Loan?

Follow the below-mentioned steps to apply for the loan.

Step 1: Fill in your personal, financial, and employment details

Step 2: Choose the loan amount you require and tenure

Step 3: Submit your proof of identity, address proof and a bank account statement of the last 3 months.

Step 4: Once the application is approved, the loan amount will be disbursed in your account within 24 hours.