Whether it's for children's school fees or a medical emergency... this option will be a smart choice..

Whether it's paying children's school fees, needing money unexpectedly for medical expenses, or home repairs, most people consider taking out a personal loan. But there's another option available that can be better than a personal loan in many ways. We're talking about a Line of Credit, which fewer people are familiar with. A Line of Credit is also called a credit line. It's another loan option, but it's more flexible than a personal loan. Here are its advantages and disadvantages.

What is a Line of Credit?

A Line of Credit is a loan option where a bank or financial institution provides you with a credit limit for a fixed amount. You can withdraw as much money as you need from this line of credit, and you only pay interest on the amount you withdraw. In contrast, with a personal loan, interest is charged on the entire amount.
Let's understand with an example:

Suppose you have a credit line of ₹2 lakh. This means you can spend up to ₹2 lakh. But if you only need to spend ₹50,000, you will only have to pay interest on ₹50,000. Later, if you withdraw another ₹20,000, interest will be charged on a total of ₹70,000. No interest will be charged on the remaining ₹1,30,000. However, if you had taken a personal loan of ₹2 lakh, even if you only used ₹50,000 from your account, interest would be charged on the entire amount of ₹2 lakh.

Personal Loan vs. Line of Credit
The interest rate on a Line of Credit may be slightly higher than a personal loan, but in many cases, it proves to be a better option.

Flexible Repayment – ​​With a Line of Credit, you only have to pay the interest; the principal can be paid later. This is not the case with a personal loan.
No EMI burden – Due to flexible repayment, you can repay it at your convenience within a certain period. Whereas with a personal loan, you have to pay EMIs on a fixed schedule. Use for any purpose – Just like a personal loan, you can use the credit line amount for children's school fees, medical expenses, home repairs, or any other purpose.
Avoid prepayment charges – Personal loans often have prepayment charges, but credit lines do not.

Things to keep in mind:
If you don't pay the principal, the interest will continue to accrue.
The bank can reduce the limit or change the interest rate at any time.
Therefore, consider your needs and options before deciding whether to take a personal loan or a credit line.

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