What is a Line of Credit?
Line of Credit is basically an agreement between a borrower and the lender whether it is a bank or a NBFC. According to this agreement the lender is ready to lend a maximum amount to the borrower. The borrower can withdraw money any time he or she want until they reach the maximum limit. The interest is charged only on the borrowed amount not on the maximum amount. This is one of the biggest advantage to have a line of credit. The money borrowed can be used for any purpose and to fulfill any type of requirement.
Difference Between a Loan and a Line of Credit
When we talk about the difference between these two, both differ from each other very slightly. Both are credit instruments only, through which one can get access to a particular amount of money which totally depends on the borrower’s eligibility and credibility. In both the case the borrower is bound to repay the borrowed amount through monthly instalments (EMIs) or quarterly instalments.
However, the difference between these two is that in a loan you borrow a lump sum amount at a time. The interest is fixed on that particular borrowed amount and in the case if you need more money then you have to go for another loan. But a line of credit provides you a maximum Limit till which you can borrow according to your requirement. There is no boundation in that. You can borrow even frequently but up to the maximum limit only. Interest is charged only for the amount borrowed.
Talking about the interest rate, interest rate for LOC is higher when compared with a general Loan. But a Line Of Credit provides you more flexibility as compared to a Loan. A flexibility to borrow with respect to time, a flexibility in the amount you borrow.
How Do Get a Line of Credit?
There are a number of banks offering lines of credit loans for both personal and business purposes. When it comes to applying for a line of credit loan, it is an easy and simple process. It totally depends on the type of loan you want and whether a line of credit is available for that or not. Till now LOC is available for only business and personal loans or you can say for a secured and unsecured loan.
The maximum amount for your Line of Credit totally depends on your eligibility. Eligibility and Credit Score are the only thing which decides your credit worthiness. After this one need submit a number of financial documents related to personal information and bank statement. The lender will check for your CIBIL and based on these factors they will decide whether you are eligible for that particular maximum amount and other terms such as tenure and all.
Banks from Where you can Get a Personal Line of Credit
Citibank is one of popular private sector bank which offers Personal Line of credit to its customers. One can take a LOC from Citibank to meet his/her everyday expense and for major expenses too such as home renovation, children’s education, medical issues and many more. You can access to your available funds online at the citi bank website itself. The rate of interest is not fixed and it depends on the amount you borrow.
Bajaj Finserv line of credit (LOC) allows their customers to manage cash flows. LOC with Bajaj Finserve provides their customers to choose a particular amount they want to withdraw from the credit limit. The customer pays interest only on the amount withdrawn. It provides a flexible repayment tenure which ranges from 24 to 60 months.
Bajaj Finserv offers a line of credit without any collateral. The money is guaranteed to be disbursed within 72 hours of loan approval. The maximum amount which can be borrowed through Citi bank is 25 lakh within a line of credit.
Through Money tap one can opt for a Line Of Credit from their website or even through their app. The process is completely hassle free and smooth. For a line of credit, the agreement is made between banks offering line of credit who are the partner with money tap. The money which can be borrowed through a line of credit is from INR 30,000 to INR 5, 00,000.
Pros of having a Line Of Credit
Flexibility- LOC provides a kind of flexibility to their customers. As here one can borrow the amount he/she requires from the credit line without any trouble.
No extra charges – when you borrow from your line of credit, you have to pay no extra charges. You can even borrow frequently without any extra or hidden charges.
Higher Loan amount- it provides you a higher loan amount (limit) from where you can borrow whenever required.
Unsecured – This is a totally unsecured borrowing which means no collateral or security is required against your borrowing. So, even when you don’t have something to give as security then also you can get the loan easily.
Line Of credit is indeed a major Loan inurnment which has made the borrowing easier for the common masses who were in need of money urgently. Its unsecured nature and fast approval is adding more value to it and hence, it is becoming more popular and favourable for the people.
Cons of having Line of Credit
Restrictions- A line of credit has a limit on the maximum amount of money you can obtain. In case you need amount more than that then line of credit can’t help you.
Extra charges/fees-You have to pay some extra charges on the use of the line of credit. Proper research needs to be done before you opt for LOC as different lenders charge a different amount.
Misuse- If you have easy access to funds you may misuse for things for which it should not have been used.
Financial disaster-If you fail to pay the interest rates it may put you into financial trouble, this can happen because the interest applicable on the LOC is somewhat high.
Difficult to qualify- You get approved for a LOC only when you have a good credit history and a good income, so in case you don’t have these you may not qualify for a LOC.