Line of credit vs credit card vs short term loans: why do lines of credit score over other options?
If you have irregular income or if during the scorching time of the Covid-19 pandemic you have faced a pay cut or job loss, you may need financial support to cover the monthly shortfall in order to meet the fixed monthly expenses.
There are many options for obtaining money on credit to cover the shortfall. Some of the options are line of credit, credit card, and short term loan.
Although people are familiar with credit cards and term loans, very few people know that individuals can also benefit from a line of credit or a line of credit.
A credit card provides a great opportunity to defer payments on the purchase of goods and services without paying interest or fees, as long as the credit card charges are paid on time.
Short-term loans are also a well-known way to get money on credit, but borrowers have to pay IMEs on time, which includes a substantial amount of interest in the initial phase of the repayment period.
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Although lack of knowledge makes line of credit less accessible, credit card facilities cannot be enjoyed by all bank customers and getting a short term loan becomes difficult without paying off the existing one.
âAccess to credit has always been a major challenge for India’s underserved population despite the advent of new tools and technologies. However, with new era solutions such as lines of credit and short term, borrowers can easily access low cost credit options ranging from Rs 2,000 to Rs 2 lakh through a digital application process. transparent, with same-day approval of the credit amount. Credit cards, on the other hand, are also a great credit tool and definitely increase your purchasing power. However, not everyone gets a credit card. There are only 55 million Indians with a credit card, as the banks that issue these cards tend to only offer credit cards to customers with very good credit histories – prime consumers. order, âsaid Anil Pinapala, Founder and CEO of Vivifi India Finance Private Limited. .
Lines of credit have no fixed or low one-time fees and lower interest is charged on short-term loans and on unpaid credit card contributions.
âFor unprivileged consumers and new credit customers, they still have digital loan options for both short-term loans and lines of credit. However, lines of credit are generally much better for customers, as fees are usually only billed once in this product. Whereas in a short term loan, the customer could end up paying a very high processing fee every time they use the product, so it becomes a very expensive proposition, âPinapala said.
Unlike short-term loans, lines of credit provide the ability to use any amount of money up to the limit and repay within the set limit or sooner without paying a prepayment charge.
âAnother advantage of a line of credit over a short-term loan is the flexibility of repayments, customers can use that money to meet various expenses and choose to pay off the loan as quickly or as slowly as they want. wish, the user only has to pay. interest on the amount used. The user can also prepay the entire amount in one go without worrying about prepayment penalties. Whereas in a short term loan the customer has to pay back the full principal and all interest / charges sometimes over a period of 2 months which is a huge burden. Additionally, in a line of credit, customers can choose to only pay interest and fees for a given month if they have cash flow issues, this ensures that their credit score is not affected but with a Short term loan If the customer pays short EMI, it will lower their credit score, âPinapala said.