What is the difference between a Personal Loan and a Line of Credit?


Personal Loan and Line of Credit are two different methods provided by financial institutes to lend money to the interested applicants. Both are the popular way of lending money. Personal Loan can be considered as a safer choice as the applicant, can choose between the secured and unsecured options. Whereas Line of Credit can be described as a credit card, which functions on an additional fee apart from interest on the principal amount. Let’s take a deeper look at both these money lending alternatives to help to choose the best option according to your requirement.

What is Personal Loan?

Personal Loans can be described as a type of loan which the borrowers apply for, with intent to fulfill his personal wishes. This can include the applicant, wishing to use that money on vacation, personal growth, education, buying a car or a home. These loans can be categories as secured as unsecured. Anyone can apply for Personal Loan in India all you need is a stable job with a decent income. It includes a simple process which doesn’t require the user to indulge in a complex process.

Secured Loan – In this type of loan, the borrower or the applicant gives the ownership of their property or asset to the bank, till the full repayment of the loan. A car loan is considered as a secure loan, as the vehicle is put as a security against the loan, which is taken over by the financial institution if the borrower fails to pay back the loan. Because of the security involved in this type of loan, banks offer a lower interest rate on such loans compared to other types of loan.

Unsecured Loan – In this type of loan, the applicant does not put any asset or property against the loan. Unsecured loans are supported merely with the creditworthiness of the applicant. Most personal loans fall into the category of unsecured loans. The uncertainty and insecurity, involved in this type of loans, make financial lenders put a high-interest rate on these loans. It can include short term loans for personal needs or educational loans.

What is Line of Credit?

LOC or Line of Credit can be described as the loan in which the bank extends the amount and the time limit of the loan, allowing the borrower to borrow money for a specific purpose. An LOC requires the borrower or loan applicant to pay the interest on the principal amount, including the fees implied for this service, which depends on a number of funds that he/she has borrowed.

Difference between Personal Loan and a Line of Credit

A line of Credit allows borrowers to use a specific amount of money that they require till a limit for a certain amount of time, which can be used for a specific period of time. The maximum limit of the money depends on the creditworthiness or credit score of the borrowers. The repayment amount will also include a specific fee which is charged for this service.

Whereas Personal loan is a standard loan, which can be applied using the basic steps involved while applying for any form of the loan. A line of Credit allows the users to borrow funds according to their need, and they will be returning the amount based on the money they borrow, in the period of their line of credit. This definitely makes it a better option, as you will have a ready source of money available, but you will be using the amount that you require, hence only paying interest on the amount that you have used.

Whereas, while taking a personal loan, you will be getting a specified amount which will be disbursed to you all together in a lump sum. And whether you consume the whole amount or not, you will have to repay the loan with the due interest on the whole amount.

Despite this, Personal Loan is considered as a more secure and better way of lending money. One of its reasons can be that people are familiar with it, and know about its process. It offers a great opportunity for people with small debts to boost their financial wellbeing. Many people are also using personal loans, for vacations and wedding which showcases that people feel a certain sense of confidence while applying for it. While Line of Credit is still a new concept, about which people still feel a certain sense of unfamiliarity. Another reason for its unpopularity can be that Indians still resist adapting into the credit card culture, and the process involved in this money lending option is strikingly similar.


A credit of Line allows you to use as much money as you want to till a certain limit which you can collect together or in installments according to your needs. This will help you save resources while also fulfilling all your requirements. You can use it for pretty much all type of personal need, which you can fulfill through a Personal Loan. Obviously, it’s a new service, and you might feel skeptic about using it. But we encourage customers to at least talk about it with their banks.

Leave A Reply