Personal Line of Credit – The Basics and Beyond!

by Anamika Verma Advisor

When it comes to borrowing money for various needs, there are many choices available nowadays. Borrowers can opt for a conventional fixed or variable-rate loan, go to pawnshops, use credit cards or borrow from friends and family.

But, there is a lesser-known option such as a personal line of credit, but it has never caught on with individuals.

It may have happened because banks never advertise so much about it and even borrowers did not ask for it.

Let’s discuss some of the basics about the line of credit facility of a personal loan.

What is a Personal Line of Credit?

A personal line of credit is a unique facility under a personal loan wherein a lender offers the borrower a fixed amount credit line, which they can withdraw as per their needs.

The EMI that a borrower pays each month only comprises of the interest component of the actual utilized amount, while the principal loan amount can be repaid once the loan’s tenor expires.

The interest rates for a personal line of credit could be 14% or higher, usually. Your interest rate will depend on your credit score. But, if your interest rate remains around 14-16%, you can consider that you have received a good deal.

Do remember that your EMI will only consist of the chargeable interest on the withdrawn amount irrespective of the interest rate.

When do you need a personal line of credit?

A personal line of credit is very beneficial when you need some money on an incremental basis.

For example, when you have to pay a contractor renovating your home, you can’t predict how much money you will actually need, and that’s when a personal line of credit will come handy.

It also prevents you from withdrawing extra funds through the checking amount when you have a variable income.

Difference between a personal line of credit and a personal loan

A personal loan is a standard loan where you get a fixed amount of money in a lump sum which you pay through EMIs.

But, a personal line of credit is like a credit card where the creditor provides you with a predetermined credit line limit, and you are free to borrow money as per the needs in small denominations.

A personal line of credit and a personal loan may sound similar, but a borrower should not confuse one for the other.

The line of credit is a facility provided on an already availed personal loan which lets you withdraw money which you need from the total loan amount called a credit line.

You can withdraw small amounts as per your needs many times. A personal line of credit is a part of personal loan you should not confuse for each other.

When you avail a personal loan, availing a personal line of credit is one of the advantages of taking a personal loan that you can avail.

To make things clearer, let’s provide you some benefits of the personal line of credit.

Personal line of credit advantages:

A personal line of credit is an amazing financing source. Some of the major benefits of availing a personal line of credit are:

You only pay the interest on the utilized money as the EMI. It lets you manage your finances better because the principal amount is due only at the loan’s tenor end
The entire process conducts online, and you can keep a control on your account. You can also withdraw money and make partial prepayments anytime as and when you need
No restrictions on total number of part prepayments and no extra charges applicable on them
No additional charges levied on withdrawals
You can convert your personal line of credit into a term loan as and when you want

Personal line of credit eligibility criteria:

A personal line of credit eligibility criterion depends on your lender. You can consider following factors before approving the line of credit.

An Indian citizen residing in top cities as notified by your lender
A salaried individual working with a multinational, public or a private company
Your salary should be higher than the smallest bracket defined for the city where you live
You should be between 25-58 years of age

Documents checklist for a personal line of credit application

Last 2 months pay slips
Last 3 months salary account statements
Employee ID Card
Any identity proof – Passport, PAN Card, Driving License
Any address proof – Passport, latest mobile, electricity bill, Driving License

Once you submit these documents, your lender will process your personal line of credit application.

The Bottom Line

Now that you know the many basics of the personal line of credit facility of a personal loan, you can ask your lender if they provide such service or not.