Why credit line loans beat traditional loans in India
What's the story
Unlike conventional loans, credit line loans in India offer a more flexible financial solution by providing a credit limit instead of a lump sum.
Borrowers can draw funds as needed and pay interest only on the amount utilized.
This article delves into their features and how to use them effectively, demystifying their advantages and workings for Indian users.
Mechanics
How credit line loans work
A line of credit loan works similarly to a credit card, but typically offers lower interest rates.
Once approved, you're allocated a certain amount, say ₹100,000. You can withdraw any amount up to that limit, at any time.
You only pay interest on the withdrawn amount, not the full ₹100,000.
This makes it a great option for people who need ongoing access to money.
Flexibility
The flexibility advantage
Perhaps the biggest advantage of credit line loans is their flexibility.
Borrowers can use the funds to address a wide range of needs - whether it's bridging cash flow gaps, covering urgent costs, or even financing small projects.
And, the fact that you can re-access the credit (up to your approved limit) by repaying the used amounts makes it even more convenient.
Rates
Interest rates explained
Interest rates on credit line loans are not fixed; they fluctuate based on your creditworthiness and the lender's policies.
However, they are typically lower than those of unsecured personal loans or credit cards. In India, you can expect to pay anywhere between 12% and 24% per annum.
It's important for borrowers to shop around, comparing rates and terms offered by different lenders, before making a decision.
Repayment
Repayment structure
The repayment terms for credit line loans are also beneficial due to their flexibility.
Borrowers usually pay interest-only EMIs on the amount used until they choose to repay the principal amount.
Certain lenders might permit you to convert the borrowed sums into EMIs, facilitating simpler repayment over time and giving you more control over your financial planning.
Selection
Choosing wisely
When choosing a credit line loan, make sure to compare lenders on interest rates, repayment flexibility, and any extra fees or charges.
Do some research on customer reviews and the reputation of the lenders.
Fast cash might sound great for right now, but you should also think about your financial future.