Be it financial emergencies or big-ticket purchases; personal loans have been the go-to loan option for Indians for a long time. And it’s no wonder why – with zero collateral requirements and fast approval times, it really makes for an ideal financial instrument.
However, they’re no longer the only option available. With the introduction of a personal line of credit(PLOC), you now have another way to fulfil your financial needs.
Let’s explore what a line of credit is and how it works.
What is a line of credit?
Simply put, a line of credit is a pool of money that you can borrow from a lender and use as and when you need it. It is quite similar to a credit card, except that you don’t have to carry a physical card with you.
Also, PLOCs are unsecured in nature, meaning you don’t have to give up any of your assets as collateral to get credit.
How does a line of credit work?
The simplest way to understand how a line of credit works is to think of it as a cross between a credit card and a loan for personal use. With a line of credit, you have the option to withdraw money from the sanctioned credit limit whenever the need arises. The best part is, you pay interest only on the amount you withdraw and not on the entire line.
For instance, if you have an LOC of Rs. 5 lakhs, and you withdraw only Rs. 1 lakh from it, you only pay interest on Rs. 1 lakh. What’s more, once you pay back the amount you withdrew, you have the Rs. 5 lakh limit available once again.
Also, personal line of credit interest rates are usually lower than that of credit cards.
Should you opt for a PLOC?
Since PLOCs allow you to draw up money from a line on an as-needed basis, they’re a great financial tool for someone who makes regular purchases and doesn’t want to dip into their savings. Also, since they’re available at a lower interest rate than credit cards, you save more with a line of credit.
However, it’s important to note that lines of credit come with a variable interest rate model, meaning that the interest rate will change based on market conditions. This can be both good and bad. Also, lenders may charge annual fees for using their line of credit.
Lastly, since a line of credit is a relatively new concept in India, not many lenders offer it. Thus, you may face a lack of options.
The bottom line
If you’ve got regular purchases to make, PLOC is clearly the financial instrument you should opt for. However, if you’re looking for ways to cover emergencies or a big purchase, a loan for personal use might be the better choice.
And for personal finance, no lender’s better than Tata Capital. With our affordable interest rates, easy personal loan eligibility, and fast processing speeds, you can have all the money you require in no time.
Start planning your repayments by using our personal loan EMI calculator today!