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How is a Line of Credit different from a Personal Loan?

08 Oct 2021 by Team FinFIRST
Line of Credit

What does a Line of Credit mean? A Line of Credit is a lesser-known credit facility that comes with startling features

A line of credit is a variation of a personal loan that enables a person or business to get money and pay it over time without having to apply for another loan. This article will help you discover what is a line of credit, types of credit lines, and how they operate.

What is a line of credit?

A line of credit (LOC) is a form of unsecured personal loan that allows people and organisations to borrow money when they need it, pay it back, and borrow more without having to qualify for another loan. An evergreen loan is a term often used to describe a line of credit.

When you do not have enough cash, these personal loans might help you finish projects or start a business. However, they are tricky. When you take on debt and delay paying it off, it puts pressure on your future.


How does taking a Personal Loan affect your credit score?

You can easily get a Personal Loan on your Aadhaar Card, here’s how

How do lines of credit work?

Let us start with how you can borrow money. You can apply for either a personal loan or a credit line. When you take out a loan, you are given a lump sum of money. You must begin paying interest right away, regardless of when you spend it.

As for a line of credit, it gives you access to a specific amount of money that you can borrow as needed. However, you do not pay interest unless you take out a loan. Company lines of credit, which are meant for companies, exist as well, although we will focus on personal lines of credit. Personal lines of credit are normally unsecured, so you do not need collateral.

A credit line has similarities to a credit card, a home equity line of credit, or a line of credit for a small business.


Better credit ratings may help you qualify for a lower annual percentage rate when applying for a line of credit. Some credit cards have fees, such as an annual charge, and limits on how much you can borrow. After you have been approved for the line of credit, you will have a specified amount of time during which you can withdraw funds from the bank. When you are prepared to borrow money, the bank may issue you special cheques or a card or transfer the funds to your bank account.

When you take out loans from your line of credit, interest typically accumulates. You must make minimum payments, the amount of which will be transferred back to your allocated line of credit as you make them. When your draw period finishes, you can begin the repayment schedule, during which you will have some time to pay off any outstanding amounts. However, making minimum payments may end up costing you more in the long run in terms of interest.

Check your credit ratings and take actions to enhance your credit health before taking up a line of credit. A good credit history enhances your prospects of applying for a reduced interest rate. Once you’ve worked on your credit, analyse how much money you need and how you intend to spend it.

If you are considering applying for a line of credit, ensure it is what you want. Understand the differences between a personal loan, which can be applied for online, and a line of credit. If you are unclear on what each of them does, visit the IDFC FIRST Bank’s website.

The distinctions between the two are clearly laid out, and you can avail of both a personal loan online and a line of credit from IDFC FIRST Bank. Competitive rates of interest and easy payback options are two significant benefits of using IDFC FIRST Bank for your financing needs.



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.