Money Tips: Credit Card, Personal Loan or Credit Line… which option is best for arranging money in an emergency?

The usefulness of personal loans and credit cards is not hidden from anyone. In difficult times, you can easily arrange money through these. But apart from these, there is another option which very few people know about. That is a Credit Line. In banking language, it is called a Line of Credit. Just like credit cards and personal loans, you can use their money anywhere according to your needs. However, just like personal loans and credit cards, the option of a credit line is also beneficial in some cases and not in some cases. By knowing the pros and cons here, you understand which option is the best for arranging money in an emergency.

What is a credit line?

The credit line is a fixed amount received by you as a loan. From which you can spend the money according to your needs. The bank charges interest on the amount you spend. The remaining amount remains in the credit line. No interest is charged on it.

Understand with an example.

Suppose you have received Rs 2 lakh as a credit line. But you need to spend only 50 thousand on it. In such a case, you will have to pay interest only on Rs 50 thousand. The remaining 1.5 lakh will remain in the line of credit. There will be no interest or penalty on these. If you withdraw 20 thousand more from it, then you will have to return 70 thousand rupees along with interest. There will be no interest on the remaining 1 lakh 30 thousand.

This is how the amount is decided.

The amount received under the credit line is also decided based on your financial status and credit score. It can range from Rs 3000 to 10 lakh. The initial limit of the credit line, its interest rate, and other rules are determined by the bank or other financial institution issuing the loan.

Personal Loan Vs Credit Line
The interest rates of credit lines are higher than personal loans, but still, credit line is considered a better option than personal loans in many cases. There are many reasons for this-

In a credit line, you are saved from loan prepayment charges, etc., which you have to pay on a personal loan.

In a personal loan, you have to pay interest on the entire amount you take as a loan. But in the credit line, neither interest is charged on the entire approved amount nor is there any obligation to use it completely.

It is quite flexible as compared to a personal loan. In a personal loan, you have to pay fixed EMI on time, but in a credit line, you have to pay only interest. You can pay the principal amount later also.

It is also important to know this.

Keep in mind that if you do not pay the principal amount in it, then the interest payment will keep increasing. Apart from this, there is a possibility of unexpected changes in the credit line, that is, the bank approving the credit line can decide to reduce your limit or change your interest rate at any time. In such a situation, whether you should take a personal loan or a credit line, you should make this decision after looking at your needs and available options.

Credit Card Vs Credit Line

Some people say that credit cards and credit line seem similar, but there is a slight difference between them. In a credit line, you do not get any card, you only get a loan agreement line. You can withdraw money from this line according to your need. The amount you want to withdraw from that line, that much amount will be transferred to your account. You have to return the amount spent along with interest. But in a credit card, a certain amount of money is made available to you online.

You have to pay interest only on the amount you spend from that amount. If the money spent in the grace period is returned, then there is no need to pay interest on it. Apart from this, the money that you return after spending gets added to your limit again and you can use it again. In such a situation, after understanding the advantages and disadvantages, you should decide for yourself which option you should choose in an emergency.

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