Why Opt For A Credit Line Rather Than Apply For A Personal Loan?

Banks are our last resort whenever we run short of finances. It could be a loss in business, wedding, or education for which we may require the money. Traditionally, banks would offer personal loans, which would have limits. For instance, you wanted a loan of about twenty thousand rupees, but since the banks wouldn’t suggest less than fifty thousand, you would have to opt for that only.

As a result, you would charge high-interest rates even if you used only a part of the loaned amount. However, with the introduction of the credit line, the problem gets solved. A line of credit allows you to borrow the amount required and charges you only on what you withdraw.

Thus, a credit line is a type of credit extended to people, business enterprises, and governments by financial institutions. An instant credit line is a credit limit that doesn’t require you to pay interest on the entire amount credited to your account. Instead, you have to pay it for the amount you withdraw.

There exist primarily two kinds of credit line: secured and unsecured. In the case of a secured one, banks extend the amount against collateral security. Thus, it charges lower interest rates. Apart from that, the interest rate is also subject to an individual’s earning and credit score. While, as the name suggests, an unsecured line of credit is offered without security, resulting in a higher interest rate.

A question may arise as to how to get credit so that you have to pay a lesser amount of interest. That can be possible if you can improve credit score. To do so, you have to take into account the following steps.

  • An essential initial step would be to have a credit file made possible by opening several credit accounts under the scrutiny of credit bureaus.
  • It would be crucial to make payments on time. If you default on it for over twenty-nine days, it could be a matter of concern.
  • It is advisable to make your bills current if you lag. At the same time, no more late payments will figure on your credit history.
  • Try to keep lower balances in your credit line and other such accounts since it helps you to improve your credit score.
  • Your score can also be affected if you frequently open accounts, although several are suitable for building credit files. A frequent application for new accounts can result in an inquiry or diminish the period of your credit accounts.

In addition to that, it would be helpful to understand why it is beneficial to get credit altogether.

  • It’s possible to borrow smaller amounts through a credit line.
  • Rates of interest are considerably lower than those charged in the case of the usual loans offered by banks.
  • It’s good to start your own business since you have to pay lesser interest rates.
  • You might not want to apply for a personal loan and require only a lower amount for your expenditure.