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Which Source of Funds Should I Choose – Personal Loans or Line of Credit?

Financial requirements can occur anytime without any forewarning. And with the increased cost of living, your income is hardly sufficient for living expenses. As a result, your savings might not be enough when you need financial assistance. Here is when you will start searching for a source of funds outside. There are various options for instant funds, such as personal loans, lines of credit, etc. But you might be confused about which to choose. Hence, this article will give you a deeper understanding of what a personal loan and line of credit are and their differences. And by the end of this article, you will get an insight into which is a better option.

What is a Personal Loan?

A personal loan is an unsecured loan taken when any financial requirement such as medical, wedding, travel, etc. It can be availed without collateral and has flexible repayment tenure from 6 months to 60 months. You can also use Buddy Loan, one of the largest loan aggregators that help get instant personal loans at low-interest rates.

Features of A Personal Loan

  1. No Hidden charges: There is no other prepayment or hidden costs. However, it will include processing fees and GST of 18%.
  2. Collateral free:  You can get this loan without submitting any collateral.
  3. Instant approval: Once you complete the verification process, your loan application will get approved instantly.
  4. Get the loan within 24 hours: Since the process is quick and online, your loan amount is disbursed to your bank account within 24 hours of verification.
  5. Minimum Documentation: You must submit only minimum documents to verify your KYC, such as your Aadhar card, PAN card, bank statement, etc.
  6. Flexible tenure for loan: The repayment tenure is flexible, from 6 months to 60 months.

When Can You Take a Personal Loan?

You can take a personal loan for various reasons, namely:

  • Wedding: On average, a simple budget wedding can cost you almost INR 10 lakhs to 20 lakhs which includes a selection of venue, decorations, catering, attire, invitation cards, etc. Hence, you can instantly take a personal loan to meet your wedding expenses.
  • Home Renovation: You can take a small personal loan to curb expenses such as home renovation, kitchen remodelling, painting, and repair.
  • Medical Emergencies: You can take a personal loan to meet sudden medical requirements such as surgeries, accidents, chronic illness, etc.
  • Travel Expenses: The cost of travelling to your dream destination can burden your pockets. Therefore, you can get a personal loan to help you meet those expenses quickly.
  • Business: If you want to start your own business or expand your existing one, then a personal loan can be beneficial to meet your business requirements.

What is a Line of Credit?

A line of credit is almost like a credit card. Here the lender sets a specific credit limit like a credit card. Here, you can borrow the funds for your requirement, repay and draw the money again up to your maximum credit limit. It is a type of revolving credit. 

For example, when you apply for a line of credit, the lender will approve you for a specific credit limit, say up to INR 10,00,000 lakhs. Instead of getting the whole amount, you can take the amount as when you require, and you only have to pay the interest for the amount you borrowed. And you have to repay the balance through fixed EMIs.

Personal Loan Vs. Line of Credit

Personal LoanLine of Credit
You will have access to the loan amount only once in a lump sum.Here the borrowing limit is preset, and you can take the amount anytime, repay and borrow again till you reach the credit limit.
The interest rates are fixedThe interest rates are variable
It may include processing fees and prepayment penalties. It may include annual fees and late and overdraft fees.
You can use it for larger purchases like a car or home.You can use it for small purchases. 

Effect Of Personal Loan or Line of Credit On Credit Score

When you apply for a loan, lenders first check your credit score to evaluate your creditworthiness. If you fail to make timely payments of your loan amount or have outstanding debts, your credit score will be affected negatively. And there are high chances of your loan application getting rejected. Hence, checking your credit report is essential to keep track of your credit history before applying for any loans.


The above points would have clarified the difference between personal loans and a line of credit. And if you want to choose between the two, the best thing is to know the need to borrow money. However, a personal loan is beneficial when you need a large sum immediately. You can get a personal loan within 24 to 48 hours with just minimum documents using Buddy Loan. Lastly, do not forget to check your credit score using Buddy Score to know your overall financial health.


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