Last Updated:July 04, 2025, 18:38 IST
A personal loan suits fixed, one-time needs like weddings or education, while a line of credit is ideal for ongoing or uncertain expenses like long-term treatment or business costs
While both personal loans and line of credit offer access to funds, they differ in terms of structure, flexibility, and repayment. (Representative/Shutterstock)
During financial emergencies, individuals often rely on borrowing options to meet urgent needs. Among the most commonly used tools are personal loans and lines of credit. While both offer access to funds, they differ in terms of structure, flexibility, and repayment.
Here’s a closer look at how the two compare and when each might be more suitable.
What Is Personal Loan?
A personal loan is a type of credit in which a bank disburses a fixed amount of money in a lump sum. The borrower repays this amount through monthly EMIs over a set tenure. The loan can be used for a wide range of purposes, including medical expenses, education, home repairs, weddings, family functions, travel, or even clearing previous debts. Importantly, there is no requirement to disclose the intended use of the funds to the lending institution.
What Is A Line Of Credit?
A line of credit involves the bank setting a pre-approved borrowing limit for the individual. An account is opened in the borrower’s name, allowing funds to be withdrawn as needed. For example, if Rs 30,000 is withdrawn, interest is charged only on that amount and only for the period it remains in use. As repayments are made, the available limit is restored, offering continued flexibility in borrowing.
What Are The Benefits Of Line Of Credit?
The benefits of a Line of Credit include:
- Allows flexible withdrawals up to the approved limit at any time
- Interest applies only to the amount utilised
- No compulsory EMI requirement
- No charges for prepayment or foreclosure
Differences Between Personal Loan And Line Of Credit
| Personal Loan | Line of Credit | |
| Fund Release | Lump Sum | As per requirement |
| Interest | On the entire amount | Only on the utilised amount |
| Repayment Structure | Fixed EMI | Flexible or Interest-Only EMI |
| Interest Rates | Fixed or Floating | Usually Floating |
| Facility | Simple | More Flexible |
When To Choose Which Option
A personal loan is suitable when the required amount is known upfront and can be repaid through regular EMIs—for example, home renovation, weddings, or education.
A line of credit is ideal when expenses are uncertain or spread over time, such as in prolonged medical treatments or ongoing business costs.
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