How do personal loans and lines of credit differ?

An instant personal loan and a line of credit both are credit facilities extended to individuals to help them meet their financial liabilities. Whether personal, medical, educational or even a travel plan; financial needs wait for nothing. When you are stuck in some dire cash need going for a personal loan or a line of credit can be helpful. While a personal loan is a non-revolving credit, disbursed in a lump sum and paid back evenly over time. An instant line of credit or a credit line is a revolving credit facility that can be paid back variably.

Both credit options can be good for you but work differently and are suitable for distinguished monetary needs. Knowing these differences can help you in making the right choice based on your eligibility, requirement and repayment capacity. Whether an instant line of credit or an instant personal loan is good for you and how they vary from one another; let’s understand in detail.

Instant Personal loan:

An instant personal loan is a credit facility where a lumpsum is credited to your account that you repay over time. It’s extended to individuals based on their creditworthiness and financial requirements. A personal loan is paid back in a pre-decided tenure in fixed monthly instalments called EMIs. An EMI consists of a part of the principal sum borrowed and divided evenly based on the loan term and a part of the interest applied. A mortgage loan, student loan, car loan, house building or renovation loan etc. are some types of personal loan.

Features and Benefits of an Instant Personal Loan

Lumpsum funding: In a personal loan one-shot payment of your borrowed sum is done in your account. Also, the interest is calculated on the total lump sum from day one irrespective of the use of money.

Consistent repayment: The repayment of a personal loan is done in fixed monthly instalments called EMIs that consist of a part of the principal amount added with interest.

Fixed tenure: The tenure of a person is always pre-decided and remains fixed until the loan remains unpaid. In the case of prepayment, it reduces and increases when there is a default in repayment.

Types of a Personal Loan

Secured personal loans: A secured personal loan is backed by a mortgage or collateral. When the lender gives you a personal loan in exchange for the title of one or more of your assets, it’s called a secured personal loan. The transfer of title is temporary and is given back to you on full repayment of the loan. But in case of default in repayment the lender takes over the possession of your asset kept as collateral.

Unsecured personal loans: When you get a person without collateral, it’s called an unsecured personal loan. for approval of this loan your income, DTI ratio, credit score and credit history etc. are taken into account. In case of failure in repayment, your credit score falls down badly impacting your credit history. If the default is temporary you can restart the payment of your loan after paying penalties or fines imposed.

Instant Line of Credit: An instant line of credit or a credit line is a credit limit approved on your account that attracts interest only on use and an unused credit limit remains free from any interest. It works like a credit card where you use the money and then only are liable for paying interest. But an instant line of credit doesn’t attract any maintenance charges or annual fees which makes it different and better than a credit card. Since the interest is charged proportionally to the use it’s calculated variably in a line of credit.

Features and Benefits of a Line of Credit

Proportional Interest: Interest levied when the money is used and only on the used credit limit. The ideal portion of a credit line attracts no interest.

Variable repayment: In an instant credit line you repay as you use. No fixed EMIs are there in it since you use them variably hence you pay back flexibly.

Continuous credit: You can keep using and renewing your credit limit of a line of credit which makes it a continuous credit support.

Types of a Line of Credit

A personal line of credit: A personal line of credit is similar to an unsecured instant personal loan where the credit limit is given to a person in particular. A salaried professional, a business person, a self-employed or anyone who can repay the credit line can avail of it. Based on income, DTI ratio, credit history or credit score you can avail of it at a reasonable rate of interest.

A business line of credit: A business line of credit is approved on account of a business and used professionally to meet the business needs only. To pay for sundry or miscellaneous expenses you can choose it for your venture since it works as a continuous credit support. It can be both secured and unsecured and mostly approval is based on the goodwill of your business.

Key differences Between an Instant Line of Credit and an Instant Personal Loan

Nature: A lumpsum amount is paid when you borrow a personal loan whereas a credit limit is approved on your account in an instant line of credit. A credit line is revolving in nature that you can keep using and renewing. But a personal loan is given for a particular time and you have to pay it back within that tenure.

Interest Calculation: In a personal loan the interest is accrued on the total approved sum irrespective of use. The day your instant personal loan is credited it starts attracting interest at a fixed rate. While in a credit line the interest is applied on the used portion only until unpaid while the unused credit limit remains free of any interest.

Repayment: You repay the personal loan in fixed monthly instalments over a fixed tenure albeit an instant line of credit can be paid back variably as used. The fixed monthly instalments of a personal loan or called EMIs that constitute a part of the principal amount borrowed added with the interest.

Renewal: Renewal of a personal loan is called a top-up where an additional sum is credited to your account. Sometimes the top-up is extended by the lender on the grounds of your sound credit history. You too can go for an instant personal loan top-up if needed and it can be for full or lesser than the initially borrowed sum.

Which is Better for me, an instant Line of Credit or Instant Personal Loan?

The answer to this question depends upon two factors-

1- Your financial requirement

2- Your repayment capacity

The bottom line is- For variable and multiple expenses, an instant line of credit is recommended since it can make continuous credit support and you pay the interest as you use. On the other hand, an instant personal loan is suggested when you have a bigger financial obligation and you can easily repay the fixed monthly EMIs.

Why Choose the FlexSalary Line of Credit?

Online availability: You can apply for a FlexSalary instant line of credit using its official website or the mobile app 24×7 making it perfect for urgent or emergency cash needs.

Simple application: FlexSalary has a short and simple application process where you can start the registration just with your name, contact details and bank details.

Minimal documentation: At FlexSalary you can have the line of credit just with your Aadhaar card, PAN card, salary slip, bank statement and one passport-size photograph. You can easily upload all the documents online.

Easy access: Based on your salary slip and a bank statement or sometimes after a soft credit pool you can avail of the instant line of credit from FlexSalary. No hard credit check is done here making it an easy credit option for you.

Instant approval: With online KYC you can complete the verification process for your documents and records provided to get instant approval on your credit request.

Quick credit: Once approved no waiting time was there in the disbursement of the credit and within 24 hours you can access the money from your account.

Flexible repayment: The repayment at FlexSalary is the best because you can pay back in variable flexible instalments. No fixed EMI is mandatory here.

Reasonable rates: rate of interest is competitive and reasonable at FlexSalary. Based on your credit history you can reach the best credit deal.

Choosing a personal loan or an instant line of credit can be easy when you know your financial requirements and repayment capacity. For bigger needs, a personal loan seems the right choice but if you get approval on a larger credit limit in a line of credit it is unbeatable. In case you need bulk money you can exhaust your total credit limit and still enjoy the benefits of flexible repayment. Since the renewal of the credit limit is easy in a line of credit it can save you from applying for an instant personal loan from scratch following its time taking and lengthy procedure. Online access, a larger credit limit, easy renewal and reasonable interest calculation are some top features that make a line of credit better than a personal loan.