Six Key Distinctions Between Personal Loans And Credit Lines

At some point in your lifetime, you may require a loan for varied reasons. These can be availed from lending institutions. Borrowing money legitimately and conveniently is possible with several available options.

While getting a personal loan may be the first choice that comes to mind in such circumstances, the Line of Credit is another option. These are solutions for borrowing money from a genuine lender in a secure manner that is simple and handy.

What is a Personal Loan?

A personal loan is a one-time borrowing for varied expenses. It can be used to fund your higher education, wedding, travel, medical crises, home renovations, etc. A personal loan can cover your existing bills as well. By applying online for a personal instant loan, you can use the funds to consolidate existing debts. Using an online personal loan interest rate calculator makes it simple to determine your loan’s monthly payments.

The personal loan interest rate calculator enables you to calculate your payments and, thus, organize your loan and repayment more effectively. With online loans readily available, you can get a personal loan anytime, from any location!

What is a Line of Credit (LOC)?

A Line of Credit or LOC allows an individual to borrow money for personal use from a lender, but unlike a personal loan, it is more flexible. A line of credit permits borrowers to borrow money based on their needs up to a certain maximum limit. This credit limit could be contingent on collateral. It is more flexible since the borrower can choose the time and quantity of withdrawal at their leisure. There is a predetermined limit; a borrower may opt to borrow significantly less than this limit, with the resulting interest rate varying accordingly. Additionally, the borrower can repay the loan in installments or all at once.

Here are the differences between them if you are unsure which option to take.

1- Disbursal Type

The disbursement method is the primary difference between a personal loan and a line of credit. A personal loan is a one-time transaction in which the total amount is deposited into the borrower’s account in one lump sum, whereas a line of credit is more flexible. A LOC has a predetermined maximum amount, up to which you have access at any moment following its approval. Also predetermined is the draw period for a line of credit. You can, however, extend this period by renewing your credit limit.

In contrast to a personal loan, a line of credit may function like a credit card due to its distributed nature.

2-The interest rate

An essential benefit of using a line of credit is that the interest rate decreases as the loan is gradually repaid. Personal loans and credit lines have different interest rates. Since a personal loan is a lump sum, the interest charged applies to the total amount. On the other hand, a credit line allows for variable disbursement, so only the amount withdrawn is subject to interest.

However, personal loan interest rates are typically less than those of a line of credit. It tends to have higher interest rates due to its more flexible nature. Choose accordingly!

3-Qualification Criteria

Due to the distinct characteristics of a personal loan and a line of credit, qualifying requirements may also vary. While you can rapidly apply online for a fast personal loan, a line of credit may require an additional account and other paperwork.

For a line of credit, the borrower’s credit score must be above 700, and the debt-to-income ratio must be reasonable. To assure the lender of repayment, the borrower will be required to provide evidence of income.

Before applying for a personal loan or a line of credit, you may check your credit score for free on the websites of top lending institutions, as it impacts your eligibility and the interest rates!

4-How Do You Apply?

While all of these can be straightforward to apply for, determining your needs is the primary criterion for a personal loan application. Since you receive a lump sum after asking for an immediate loan online, you should know how much money you need before applying. The disbursed amount cannot be modified after the loan has been approved.

To obtain a loan against a document or collateral, you must present it during the application process. Since it is a flexible process, a line of credit does not require a fixed amount. You may change your mind and withdraw anytime during the contract duration.

5-Credit Limit

A personal loan has no additional limit because the total amount is deposited into the borrower’s account in one go. However, a line of credit has a limit based on the collateral (e.g., a fixed deposit or something similar) used to determine the boundary.

6- Repayment Procedures

Personal loans must be repaid within the stipulated time frame, following the terms of the loan arrangement. The monthly payment amount is based on the total loan amount and the interest rate. You may calculate EMIs online. The EMI for the personal loan you seek can vary.

A line of credit, on the other hand, permits simple repayments. You can repay the principal amount more freely, but you must pay the interest every month without fail to avoid a penalty.

While a personal loan is more solid, a line of credit provides greater flexibility for ongoing projects requiring variable investments. A line of credit may be the best option when you do not have a cost estimate. However, a personal loan is more convenient if you know precisely what you require.


Now that you understand the distinction between a personal loan and a line of credit, it’s time to choose the most appropriate alternative. If you’re interested in personal finance and searching for a reputable lender, Fullerton India is the place to go.

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