Personal Line of Credit

A personal line of credit is a flexible borrowing facility that gives you access to a preset or pre-approved credit limit. Unlike a traditional loan, it allows you to withdraw funds whenever needed, up to the sanctioned amount, similar to a credit card.

Interest is charged only on the amount utilised, helping you manage your finances more efficiently. Similar to revolving credit, it lets you withdraw as needed and repay at your own pace. Beyond personal or emergency expenses, it can also be used for debt consolidation, making it easier to manage multiple obligations under one account. 

You can apply for a personal line of credit through leading banks and financial institutions. Your chosen lender approves a credit limit that you can use as needed, rather than receiving a lump sum upfront. It is designed to provide both convenience and financial flexibility.

Here are some of the key benefits.

• Flexible Access to Funds

You can withdraw money whenever you need it, up to your approved credit limit. This allows you to manage your finances according to your requirements. 

• Interest Charged on Utilised Amount Only

You are charged interest only on the amount you actually use, not on the entire credit limit. This helps in reducing your overall interest expenses. 

• No Collateral Required

A personal line of credit is usually unsecured, meaning it does not require you to pledge assets as security. This makes it easier to access funds without risking property or valuables.

• No Prepayment Charges

You can repay your outstanding balance ahead of schedule without incurring any penalties. This flexibility allows you to save on interest and manage debt more efficiently.

To qualify for a personal line of credit, lenders generally consider the following factors:

• A strong credit score, typically above 700, along with a positive repayment history

• Stable and verifiable income with proper job documentation to demonstrate repayment ability

• A healthy debt-to-income ratio that reflects sound financial management

Applying for a personal line of credit is a straightforward process. You can choose to apply online or visit a lender’s branch.

1. Log in to the official website of your chosen bank or financial institution, or visit a branch in person 

2. Create an account using your basic personal details and complete the application form with your details

3. Submit the required documents for identity, address, and income verification

4. The lender will assess your application and evaluate your credit profile

5. Once approved, you will receive a sanctioned credit limit

A personal line of credit is a revolving facility that allows you to withdraw funds as required, within a pre-approved limit. Unlike traditional loans, interest is charged only on the utilised amount, not the total sanctioned limit.

• Applicable Interest Rates

Unlike traditional loans, you pay interest only on the funds you use, not on the full approved limit. No interest is charged until you withdraw money.

• Flexible Repayment

Repayment can usually be customised to suit your situation. You may repay the full outstanding balance at once or spread payments over time through manageable instalments. Most lenders allow terms ranging from a few months to several years.

• Borrowing Limit

Your lender assigns you a borrowing limit based on your income and credit profile. This is the total amount you can access, but you are not required to use the full limit.

• Easy Withdrawals

You may withdraw funds whenever required, provided your usage stays within the sanctioned limit. Once you repay what you have borrowed, your available credit is restored, and you can use it again.

For example, you have a credit limit of ₹2 Lakhs, and you withdraw ₹50,000 for a medical expense. Interest will apply only to the withdrawn amount, and once you repay it, your ₹2 Lakh limit is restored. If no funds are withdrawn, you will not have to pay the interest amount.

Lines of credit come in several forms to suit different needs. Each type offers revolving access to funds up to a set limit, but the source of security, typical uses, and repayment structure can vary.

• Business Line of Credit

A business line of credit lets companies access a fixed amount of funds and use them whenever needed. It works like revolving credit, allowing businesses to borrow, repay, and borrow again within the approved limit.

This flexibility makes it useful for managing expenses such as stock purchases, daily operations, or inventory management.

• Personal Line of Credit

Designed for individuals, this facility can be used for a range of purposes. You can use it for medical expenses, home improvements, or travel. Many banks offer these with competitive pricing, and you pay interest only on what you draw.

• Linked Overdraft Facility

Tied to a current or savings account, it lets you overdraw up to an agreed limit. It provides short-term flexibility for timing mismatches between payments and receipts without opening a separate loan account.

• Home Equity Line of Credit (HELOC)

Backed by home equity, a HELOC works as a revolving facility with a variable interest rate. You can borrow as needed during a set draw period, usually around 10 years, and pay interest on the amount used. 

The repayment phase typically lasts up to 20 years, making it suitable for ongoing or uncertain costs like home renovations or education.