Personal loan or line of credit? What suits you the most

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The COVID-19 pandemic has amplified uncertainty about finances and physical and mental well-being. With the growing number of COVID-19 cases, it has become imperative to prepare for the uncertainty and plan your finances accordingly.

The current situation has led a large number of banks to offer emergency lines of credit to help their customers cope with current financial difficulties.

“Some banks only offer them as an overdraft to their salary and retirement account holders. In addition, there are a few lenders who also offer lines of credit to other borrowers,” said Gaurav Aggarwal, director. and responsible for unsecured loans, Paisabazaar.

According to Gaurav Chopra, founder and CEO of IndiaLends and chairman of the Digital Lenders Association of India, a line of credit gives consumers flexibility on how much to borrow and how and when to repay.

“The biggest advantage of this is that once the amount is paid off, it can be borrowed again and it can continue indefinitely. With a line of credit, since consumers only pay for what they use, it can also be cheaper, ”he explains.

On the other hand, personal loans allow consumers to borrow a lump sum and repay it on a fixed repayment plan, usually on the basis of monthly installments. With a loan, borrowers have to pay interest on the full amount regardless of when they use the funds.

In the event of a financial crisis, according to IndiaLends’ Chopra, a line of credit could be ideal when borrowers have access and the flexibility to use funds as and when needed without having to apply for multiple loans.

“In the line of credit, interest is only charged on the amount borrowed, until it is repaid. This is best suited for those who face frequent short-term cash flow lags and also have the adequate ability to repay the borrowed amount within a reasonable time. short period, ”according to Aggarwal.

Others should stick to regular personal loans offered as term loans.

“Especially those who lack financial discipline and may have a tendency to needlessly borrow more than what they need, without having the capacity to repay in a short period, should prefer to take a personal loan for their immediate needs,” he adds. he.

First publication: STI

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