A personal line of credit serves the same purpose as that of a personal loan. Both of them are multipurpose loans and can help you to fight financial crises. However, they have some major differences too. Most borrowers fail to understand these differences and it leads to confusion in the later stages. Let us have a quick look at both the credit products so that you have a better understanding of both of them.
Personal loans are often called as conventional loans. You can apply for such a loan manually by visiting the branch office of the lender. These are multipurpose term loans that can be used for numerous reasons like buying a vehicle, managing wedding expenses, etc. The rate of interest on conventional loans is calculated in a compounded way and its repayment is done through EMIs till the end of tenure.
Personal Line of Credit
A personal line of credit is an online loan where the lender grants you a particular loan amount that you can withdraw in many small installments. There are no limits on the number of withdrawals you can have on your line of credit. Similar to conventional personal loans, a personal line of credit can be used for any purpose. The repayment of this loan is flexible and does not happen in EMIs. Once you pay it off, the funds are transferred back to your credit limit and you can use the same limit again.
Both these lending options have their pros and cons. Below is a comparison between both the convention loans and online lending:
Usually, both these loans are unsecured loans. However, if you have a poor credit history, the conventional financial institution may ask you to secure the loan with collateral. Whereas, a personal line of credit is always a collateral free loan.
Chances of approval
The conventional lending institutions have strict eligibility criteria and require heavy documentation. Therefore, the chances of loan approval are less as compared to the personal line of credit. Online lenders have flexible eligibility terms. Minimal documentation and instant approval are some of the added advantages of availing a personal line of credit. Therefore, in you are in urgent need of money, a personal line of credit is a better option.
The interest rate is a major factor while availing a loan. Even a slight reduction in the interest rate can help you save a lot of money in the long run.The interest rate on a personal line of credit is always lower than a conventional personal loan. It is calculated only on the amount that you withdraw. You can also reduce the interest rate by paying the loan sooner.
Now that you are well aware of the major differences between online and conventional lending, make sure that you settle for the one the best suits your needs. Do not forget to read the terms and conditions of your loan agreement before signing it.