Personal Loan

Pros and cons of taking personal loan on credit


When you are in urgent need of money, your first thought might be to use your credit card. Well, it is true that a credit card is meant to be used for urgent needs, but you must avoid it. High interest rates and their impact on credit scores make using a credit card an unwise choice. This is where the option of a personal line of credit comes to your aid. It is also a form of revolving credit, just like a credit card. But it saves you from the negative impacts of using a credit card.

Read on to learn more about the key aspects of a personal line of credit.

What is a personal line of credit?

A personal line of credit is a form of revolving credit offered by banks and NBFCs. You can also consider it a personal loan that you can access whenever you want. Herein, you are given a limit of up to a certain amount. But, rather than sending the entire amount to your bank account, the lender creates a new account under your name. You can then draw only what you require. Hence, you will need to pay interest only on the amount used.

The available limit is reduced when you draw from your account. Likewise, it is increased when you repay the amount owed on the account. Under a personal line of credit, there is no fixed EMI. The EMI will vary as per the amount you have used and the balance at the end of a month. Some lenders offer you the option of paying only the interest part every month and the principal amount when you can. However, the limit will be restored only when the principal is paid.

There is also the option of paying the entire principal at the end of the term. The normal loan tenure that most lenders offer here is in the range of 2 months to 60 months. As such, a personal line of credit works like a credit card but offers the features of a personal loan. The lenders would levy annual charges for offering this facility. They can also increase the limit as per your needs and repayment history.

Benefits of a Personal Line of Credit

There are many benefits to using a personal line of credit instead of a personal loan or a credit card. Read on to learn about the key benefits of this financing option:

Low interest cost: When you take a personal loan, you need to pay a fixed EMI. It makes no difference if you still have some unused loan amounts in your bank. But when you take out a personal line of credit, you only need to pay interest on the amount you use. Hence, if you do not need the entire amount at once, you do not need to support high EMIs. You only pay interest on the money drawn. Hence, over a period of time, you can enjoy the benefit of low interest costs. Also, when you pay your EMIs on time, the lenders will offer you a lower rate of interest. This will further reduce the total amount you must spend on interest over the loan tenure.

Flexible Repayment: As stated above, every personal loan has a fixed schedule. You need to pay the same EMI during the loan tenure. It does not matter if you have used the entire amount or not. This is why a personal line of credit makes more sense. You will be given several options for repaying the loan amount. You can choose to pay only the interest during the loan tenure and the principal as a lump sum at the end of the tenure. Otherwise, your EMI will be determined by the amount you have used. If you do not use any funds, you are only required to pay the lender’s fees.

Easy access to funds: Most lenders allow you to access your personal line of credit as and when you want. This is possible through their website or mobile app. There is no need to route your request through the lender. Hence, you get easy access to the funds and can use them as and when you need them. It will only take a few seconds for you to complete the request and send the money to your account. Similarly, you can repay the amount with equal ease. Easy access to funds makes the entire process seamless and hassle-free.

Good for phased spending: When you take a personal loan, you rarely use up the entire amount at once. Instead, in most cases, you will spend the money over several months. But you will have to pay the EMIs, based on the total amount, right from the first month. Hence, if you need to spend the money in a phased manner, you can opt for a personal line of credit. Herein, you have the option to draw money in parts as and when you need it. As a result, you do not have to stress your finances to support the full EMIs.

A personal line of credit is surely a good option to meet your short-term and long-term needs. But the problem is that only a few lenders offer this option for personal loans. If you need to learn more about this credit option, then visit Piramal Finance. They have many articles and blogs to help you improve your finance skills. If you have any urgent money needs, they also offer a variety of loans. High-value loans at low interest rates from Piramal Finance can come in very handy when you need the money most. Their experts are always ready to help you with your doubts.