With the advancement in the fintech industry, we have a lot more options now when it comes to borrowing funds and that leaves most of us confused with our choices. Getting a line of credit is a good option so, let’s compare it with traditional loans from banks.
What is a line of CreditIJ
This is an agreement between you and a financial institution where they extend a loan that you can keep borrowing against, up to a maximum amount. In most credit lines, you can borrow funds again after repaying the money.
What is a Bank loanIJ
This is where a bank or lending institution gives you one-time access to a specific amount of money, with an agreement that you will repay these funds in fixed instalments within a certain timeframe. You cannot borrow against a bank loan again after repaying it.
line of Credit from an app like MoneyTap vs. a loan from Bank/Other Financial Institution
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Personal line of Credit |
Traditional Bank loan |
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Approval |
The application and approval process is generally quite easy, quick and hassle-free. |
Application and approval can take quite a while, especially if you have to visit the bank. |
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Withdrawal |
A line of credit allows you to withdraw amounts of your choice anytime but may have a minimum withdrawal limit. |
With a bank loan, the entire loan amount for which you have been approved is handed over to you in a lump sum. |
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Revolving Credit |
Every time you make a repayment, the available credit limit is recharged and can be borrowed again in the future. |
After you have used up the funds allocated to you, they cannot be borrowed again even if you have repaid the bank loan in full. |
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Collateral |
Most credit lines are unsecured loans, and do not require any collateral backing. |
Most bank loans require collateral backing, whereby you put up an asset against the loan. |
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Flexibility |
lines of credit feature a flexible borrowing limit, where you can pick any amount between the minimum and maximum limit. |
When you have received approval for a bank loan, the complete approved amount is transferred to your account. |
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Purpose |
You can use funds from the line of credit or the credit card you get with it for any purpose, without needing to disclose it. |
Except for personal loans, bank loans require you to disclose the reason why you are borrowing funds, e.g. car, home, etc. |
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Interest |
You are charged interest only on the amount you actually use from the credit line, not the entire approved amount. |
You will accrue interest on the complete loan amount right from the time of disbursal, whether you use it or not. |
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Rewards |
You receive a credit card along with the line of credit, which gives you additional rewards, discounts and other benefits. |
Bank loans are usually not accompanied by credit cards for purchases, or any other rewards, discounts and benefits. |
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Repayment |
You can choose a repayment schedule and term based on your own convenience, and prepaying the borrowed amount does not incur penalties. |
You need to make fixed repayments within a certain time period, and paying off the loan early will involve a prepay penalty or other charges. |
A line of credit is often called an instant loan, since you can borrow against it right from the moment you are approved. MoneyTap is a great resource when in need of financial help as it’s an app which gives you a line of credit with a credit card that you can use when needed or borrow from in the form of instant personal loans.
The application process is quick and hassle-free. What more could you wantIJ Download their instant loan app now and get approved in less than 4 mins for up to Rs. 5 lakh line of credit.