There are many times when you need lots of money to finance your financial needs be it a home renovation, upgradation of home appliances etc. You may want money to meet unexpected medical expenses or to pay your taxes. You will need credit at a very low rate of interest or to consolidate your funds. Both personal loans and a line of credit help the person meet their needs they both work very differently.
A personal loan is very different from a credit line. In a Personal loan, you need to repay your debts with a fixed amount of interest rate over a particular period of loan term. Personal loans give flexibility to pay debts easily as compared to lines of credit. However, lines of credit also give several flexibilities in borrowing loans. In this case, you can borrow as much as you can, repay your funds and borrow money again when required.
There are many times when you prefer a line of credit based on your preferences or needs. It won’t provide short-term personal loans. Here, in this blog, we will let you know the basic difference between a personal loan and a line of credit:
Personal Loans Vs Line of Credit
Personal loans are sometimes called signature loans. It gets the name with the word signature that if you applied and signed the application form, you will be eligible for borrowing a loan in your name. As the loan is unsecured, you don’t need to offer any security amount of collateral assets like a home, vehicle or any financial asset.
On the other hand, Lines of credit act as credit card accounts. You can easily apply, borrow and then pay down your balance. Then, you can easily access money repeatedly. Unlike your personal loan, you can easily apply for unsecured credit in the times to come at several intervals. You will surely get a better rate of interest if you secure your credit.
Qualification for Personal loan and Line of Credit
Both lines of credit and Personal loans have different qualification criteria for getting loans. They require specific things from the borrower. The main difference between them is to have a specific level of CIBIL score or credit to get the loan on the eve of lines of credit or Personal loan. You should contact your lender to know what they are asking.
Note: A better way to get short-term personal loans, long-term personal loans or just money with lines of credit is to check the credit score in advance so that you won’t face any difficulty at a later stage.
Application procedure
The application procedure for personal loans and lines of credit is slightly similar. You need to submit the required document to your banking institution or lender with the specific credit score. They will review your creditworthiness with a CIBIL report. Also, they will access your income and employment and the ability to pay your debts. It is noteworthy that the better the credit, the better the chances of getting a loan on time.
Rate of Interest
In a personal loan, the interest rates will remain the same throughout the loan tenure and you have to pay a fixed amount of interest on the money you have borrowed. For more clarification, you can log in to your account or contact your lender. In a Personal loan, the interest rates will remain the same throughout the loan life.
The rate of interest will based on the amount/credit of your lender. The average rate of interest may range from 4% for exceptional credit holders and up to 25% for poor credit holders.
On the other hand, the interest rate on lines of credit provides more flexibility which comes at a cost with a higher rate of interest. The rate of interest may change over a particular point of time and it doesn’t kick you once you have approved.
Summary
Personal loans are very helpful as they are financial assistance in times of need. On the other hand, lines of credit also provide credit, but you can get credit again and again on approval from your lender. All of the two can be borrowed on specific eligibility criteria. Both have the same application procedure.
