The Pros and Cons of Having a Personal Credit Line: What to Consider

There are times when you may need more money than what you already have. A home makeover, the latest smartphone, a car repair, or a spontaneous vacation – financial needs don’t always align with the available cash. At such times, the complexities of a traditional loan, with its paperwork, lengthy approval process, and rigid terms, may not seem favourable.

A personal credit line becomes useful in such situations. It is a type of revolving credit that provides access to funds up to a preset limit. Although this borrowing option is useful in many situations, weighing both pros and cons is still helpful to fully capitalise on its benefits and use it responsibly.

Pros of having a personal credit line

Here are the key benefits of this financing option:

Flexible borrowing and repayment

A credit line lets you borrow as much or as little as you need up to the approved credit limit. This feature makes it ideal for ongoing expenses, such as home improvements. Also, you have the freedom to repay the borrowed amount over a flexible schedule through Equated Monthly Instalments (EMIs), which can further reduce the financial pressure.

Lower interest rates

Usually, the interest rates on personal credit lines are lower than on credit cards. This difference can make credit lines a cost-effective option for managing expenses or large purchases. By opting for a credit line, you may save a substantial amount in interest payments, specifically if you plan to carry a balance over the long term.

Emergency funds available 24/7

Having a personal credit line means you have a pre-approved amount of money available whenever you need it. This availability can be incredibly valuable and reassuring in emergencies. Instead of applying for a loan, you can immediately access funds, which can be crucial when managing time is important.

Pay interest only on the amount used

Choosing INDIE’s My Credit Line brings a financial advantage, i.e., you only pay interest on the amount you use. Thus, you don’t incur any cost on unutilised funds. Moreover, you can borrow anytime and multiple times, all while having the freedom to pay back in convenient EMIs ranging from 3 to 36 months. 

Simply download the INDIE app by IndusInd Bank and enjoy an instant credit line of up to ₹5,00,000 for your needs. 

Simplified financial management

A personal credit line makes managing your finances simpler. It consolidates multiple borrowing needs under one product, which eliminates the hassle of juggling several loans or credit cards. This consolidation can also streamline your budgeting and repayment strategy, thus, keeping your financial life organised.

Cons of a personal credit line: What to Consider?

While a credit line offers flexibility and convenience, there are some risks, such as: 

Risk of overborrowing

The very flexibility that makes a credit line loan appealing can also lead to a common pitfall i.e., the risk of overspending. Because you can borrow up to the credit limit at any time, it may encourage unnecessary spending. Thus, set clear rules for what you will use the credit for and stick to a budget.

Interest accumulation 

While personal credit lines may offer lower interest rates than credit cards, they still accumulate interest. Over time, this can result in a huge interest outgo, especially if you borrow a large amount or fail to make timely payments. Hence, it’s crucial to have a disciplined approach to borrowing. 

Impact on credit scores

High balances relative to your credit limit, late payments, or defaulting on your credit line can impact your credit score and make future borrowing more difficult or expensive. Therefore, you must monitor your credit utilisation and make timely payments to protect your credit health.

Are you applying for a personal credit line? Know what to consider

A personal line of credit comes with many benefits, such as instant fund access, interest only on the amount withdrawn, lower costs, and flexible EMI options. However, since it is a credit product, you need to have a repayment plan. 

Therefore, assess your financial situation, borrowing needs, and capacity to repay before using this financial cushion. Evaluate the terms and conditions, including interest rates, fees, and repayment options. Borrow responsibly and use the credit line as a tool to manage your finances effectively.