Should I Go For A Credit Card or A Personal Line of Credit?

All of us have often come to crossroads when it comes to funding our needs beyond our available liquidity. A house, a home-makeover, that new car or simply a new laptop…

One can opt to apply for a personal line of credit – adding to the personal loan amount in one’s account. A personal loan is a cheaper option of accessing extra funds. However, that takes effort and time. Then there is the ubiquitous credit card that comes loaded with a debt trap.

Even though both are types of credit given by financial institutions, they are way different in their entity. The way they impact one’s financial health and long-term credit score needs to be weighed properly and see which is better to use: Credit card or Personal Line of Credit.

Learn more about: The Basics of Lines of Credit

Let us take a look at the pros and cons of credit cards against the personal line of credit right here:

Application Process for Personal Loan & Personal Line of Credit

Both kinds of funds will be approved after a minimum amount of paperwork, but credit card approvals will be easier and faster. Even though an online personal line of credit application form can be filled, one would have to submit a salary slip, Form 16, and bank statements of the last three months.

However, there are instant online approval platforms available that help simplifies the pre-approval process. There is no paperwork involved. You simply download the app, or go online as required, fill in your details and voila! A bank agent will be at your place for your eSignature, and your desired amount gets approved.

Additional Reading: Checklist For A Personal Loan

Amount to be Withdrawn

Credit cards generally come with a fixed credit line. Whereas, a personal line of credit is fixed by a calculation based on your monthly income. When you access the funds, the amount is credited as a lump sum thus giving you the freedom to plan your next move.

Some online apps empower you with the best of both. Even though you have got a personal line of credit approved, they allow you to enjoy partial withdrawals. It gives you the freedom to use a part of the amount approved with interest being paid at the amount actually spent.

Interest Rate to be Paid

A decisive factor is how much to pay to clear the credit. The interest rate on the personal line of credit comes between 12-20% annually. Though on the credit card it appears as a mere 1.5% – 2.99%, in reality, it works out to be 18 – 36% annually.

With a credit card, one needs to pay off the entire amount to avoid accruing interest which can easily go out of control. Also, understand that the credit card funds are offered at flat interest rates, whereas the personal line of credit is offered at reducing balance rates.

As a result, a personal line of credit can be more pocket-friendly as you keep paying off the interest and a portion of the principal amount every month.

Your Decision

Credit cards and personal line of credit, each come with their own perspective. They differ in the type of interest rate charged, the amount approved and repayment mode offered. Withdrawing and paying off the credit card funds requires a great level of dedication but it is easy to access. There is no fixed date of repayment so you need great self-discipline to use it wisely.

When it comes to repaying a personal line of credit, the monthly payment scheme could be a boon. It is designed as a disciplined repayment module. A personal line of credit will keep you updated about your repayment schedule. A credit card often leaves you clueless about overspending until the credit limit is reached (Compare between Personal Loans and Lines of Credit).

We all know it is much easier and convenient to swipe the credit card whenever required. But do remember, to fund big investments, a personal line of credit is sometimes a better option. Always ponder the pros and cons according to your needs and requirements. Both the credit card and personal line of credit are easily available to the modern consumer. One needs to take a long hard look to choose the one that suits your needs the best.