What Makes Personal Loans Better Than Personal Credit Lines
When it comes to choosing between personal loans or credit lines, there’s often a shroud of mystery as to what each of these really entails. We’re here to help you understand and make an informed decision. Before delving into how they differ, let’s begin with what personal loans and personal credit lines actually are.
Personal loans are full of certainty. Fixed funds disbursed as a lump sum, fixed interest rates charged on reducing balance, and EMIs on fixed dates. Personal loans are ideal for single purchases or events. On the other hand, a personal Line of Credit (LOC) is flexible and works quite like a credit card. It offers a maximum borrowing limit wherein you can withdraw only necessary amounts when required. This proves to be a good option when dealing with ongoing purchases and indefinite costs.
But there’s more that makes a personal loan stand out in comparison to a personal LOC
1. Lower interest rates
Credit lines not only require higher credit scores but owing to flexibility and uncertainty, lenders prefer charging higher interest rates and limiting funds to compensate for the risk factor. Interest rates for LOCs are also subject to change, depending upon the lending company. Whereas, personal loans, being more definite, offer low, fixed interest rates, charged at a reducing balance method.
2. Offers EMIs
Depending on your tenor, personal loans are paid off in Equal Monthly Instalments, which includes the principal and the interest. For a Personal LOC, however, the outstanding statement is received at the end of every month and you are expected to pay only the interest accrued on the amount withdrawn till the due date. While this may seem feasible, it adds to the worry of paying off the principal as a whole at the end of tenure. Secondly, though the interest rates for both are flat, the amount withdrawn from a LOC may differ every month, thus leading to fluctuations in interest charged on utilisation of credit. This makes personal loan borrowing a stress-free, more ‘Aasaan’ option.
3. Long tenor
Personal loans and personal LOCs, both are repayable on a monthly basis. However, because LOC is relatively new to the finance industry, mostly unsecured, and not handed out against any collateral, lenders prefer offering a lower repayment tenor, generally just up to a year or so. On the other hand, banks and NBFCs offering personal loans increase the tenor even up to 3-5 years, depending on the loan amount.
4. Ease of payment through ECS on scheduled dates:
With personal loans being repaid in EMIs, you can easily pay them off via an Electronic Clearing Service, where the instalment is directly transferred from the bank to the lender, without physically having to wait in queues or worry about the due date. All you need to do is sign a mandate, approving the fixed amount transferred monthly. Credit Lines with uncertain withdrawals cannot offer this option as monthly repayments aren’t equal.
All this and more makes a personal loan a preferred choice for one-time payments like weddings, holidays, luxury buys and more. At Aasaan Credits you can find all these benefits, along with additional ones like zero credit history, 24-hour disbursal, minimum documentation and maximum ease-of-operation, making your choice of personal loans absolutely apt for your personal needs!