What is a credit line, and who should you opt for it?

With evolving financial needs of individuals, a line of credit serves as a flexible and convenient borrowing option to meet their varying expenses. Unlike traditional personal loans, a credit line offers you a pre-approved amount of money that can be accessed as needed without incurring the cost of the total approved loan amount, offering a cost effective and convenient way to opt for urgent funds. This article aims to explain the concept of a credit line, how it works, and highlight its advantages over traditional personal loans.

What is a line of credit?
 

A line of credit, also known as a credit line, is a type of loan that provides you with a predetermined amount of money that you can access any time with the facility to withdraw funds multiple times as needed. Unlike traditional personal loans, where you receives a lump sum upfront and repay it over time, a credit line allows you to withdraw funds whenever required, up to your approved limit.

For instance, with IDFC FIRST Bank’s FIRSTmoney, you can apply for this line of credit online and enjoy instant approvals of limits up to ₹10 lakhs through a quick digital application. FIRSTmoney lets you withdraw funds in one go or in parts up to your approved limits based on your financial requirements. This flexibility makes it an attractive option for you to access funds for various purposes such as emergencies, home renovations, planning trips, covering marriage expenses, etc.

Additionally, the FIRSTmoney line of credit comes with an attractive interest rate and zero foreclosure charges, making it one of the most affordable options to meet your varying needs.

How does a line of credit work in India?
 

To understand how a line of credit works, go through the following example. Suppose you are approved for a credit line of ₹5,00,000. You can withdraw any amount up to this limit and pay EMIs only on the amount you have withdrawn. For instance, if you withdraw ₹1,00,000, you will only be charged interest on this amount, not on the entire ₹5,00,000.

As you repay the borrowed amount, the funds become available for you to borrow again, similar to a revolving credit facility. This feature allows you to manage finances more effectively, as you can access funds when needed without having to reapply for a new loan each time.

How is a line of credit different from traditional loans?
 

1.   Flexibility

Unlike traditional personal loans, where you receive a lump sum upfront, a credit line allows you to access funds as needed, providing greater flexibility in managing your finances.

2.  Interest charges

With a credit line, you are only charged interest on the amount you have withdrawn, not on the entire approved limit. This can result in lower interest charges compared to traditional loans.

3.  Revolving credit

A credit line works like a revolving credit facility, where the funds become available for you to borrow again as you repay the borrowed amount. This feature provides ongoing access to funds without the need to reapply for a new loan.

4.  Flexible repayment

Unlike traditional loans, which usually have fixed repayment schedules, a credit line allows you to repay the borrowed sum in flexible tenures that can range from a 2 months up to a period of 5 years.

Additional benefits of the FIRSTmoney credit line
 

1.   Convenience

A credit line provides borrowers with convenient access to funds when needed, without the hassle of getting approvals for a new loan each time.

2.  ZERO foreclosure charges

You also enjoy the freedom to close your loans before the tenure without incurring any extra cost. With a FIRSTmoney line of credit, you get full control over your funds and can pay your dues anytime in full. 

Who should opt for a line of credit?
 

A credit line can be a suitable option for those who need access to funds for various purposes, such as emergencies, home renovations, medical expenses, marriage, or travel expenses. It is particularly beneficial for those who prefer flexibility in managing their finances and want the convenience of accessing funds as needed.

With a high credit score, anyone can opt for a line of credit with affordability and convenience. To apply for a FIRSTmoney credit line, you need to have a CIBIL score of 730 and above, a stable income from business or employment, and a physical PAN card during the V-KYC (Video KYC) process.

Conclusion

A credit line offers borrowers a flexible and convenient borrowing option, allowing them to access funds as needed and complete the repayment at a convenient pace. Unlike traditional personal loans, a credit line provides ongoing access to funds without the need to reapply for a new loan each time. With the FIRSTmoney line of credit, you get lower interest rates, zero foreclosure charges, and a swift disbursal process, making it a suitable option to access funds for your dynamic financial needs.

Disclaimer

The contents of this article/infographic/picture/video are meant solely for information purposes. The contents are generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. The information is subject to updation, completion, revision, verification and amendment and the same may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject IDFC FIRST Bank or its affiliates to any licensing or registration requirements. IDFC FIRST Bank shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information mentioned. Please consult your financial advisor before making any financial decision.