A line of credit allows you access to money “on demand.” It’s not exactly
a personal loan and not quite a credit card.
What is a Personal Line of Credit?
A personal line of credit is a ready source of funds for personal as well as business needs. It gives you access to money, up to a certain limit. You can withdraw from the line of credit, up to your credit limit for as many times as you want and for anything you want to use it for. However, whatever amount you withdraw, you need to repay it with interest.
The interest is charged on the amount drawn from your credit line and not on the entire credit limit. The personal line of credit stays with you for life as long as you keep repaying the borrowed amount and not exceed your credit limit amount.
Types of Lines of Credit (LOCs)
How Personal Credit Lines Work?
A personal line of credit is designed with in-built flexibility. You can borrow the amount you need, and tailor your withdrawals according to your needs. You owe interest only on the amount you withdraw, and not on the entire credit line. If you decide not to use the line of credit, you do not have to pay any interest on it.
Once you start borrowing from your personal line of credit, the interest starts accruing and you need to start repaying the borrowed amount. You can decide to pay the entire outstanding balance all at once or make the minimum monthly payments (based on your budget or cash flow) that are spread across a tenure, which can typically range from 2 months to 5 years.
Similarities and Differences of a Personal Line of Credit
With Other Types Of Credit
Personal Line of Credit Uses
Just like personal loans and credit cards, personal lines of credit can be used for almost anything. Some of the situations where personal credit lines are worth considering are as follows:
Advantages and Disadvantages of a Personal Line of Credit
Tips to Consider Before Applying a Personal Line of Credit
Tips for When to Use (And Not Use) a Personal Line of Credit
Important Tips to Make the Most of Your Personal Credit Line
A personal line of credit is an excellent financial tool.
This checklist ensures that you make the most of your credit line:
How to Apply for a Personal Line of Credit in India?
To apply for a personal line of credit, you’ll need to submit certain documents. Below is the list of documents, banks and other financial institutions usually ask:
The bank/lender will verify these documents, check your credit score and
then approve or reject your request for a credit line. The interest rate offered on the credit line largely depends on your monthly income and your credit history.