Personal Loan vs Line of Credit: Which Borrowing Option Fits You Best?
When financial needs arise—be it for a home renovation, medical emergency, or vacation—two common borrowing options come to mind:
✅ Personal Loans
✅ Lines of Credit
But which one suits your needs, repayment ability, and risk profile?
Let’s dive into a side-by-side comparison, powered by expert insights from Vizzve Financials, to help you decide wisely.
🔍 What is a Personal Loan?
A personal loan is a lump-sum loan disbursed at once, typically unsecured, with a fixed interest rate and EMI for a pre-defined term.
Key Features:
Fixed interest rate
EMI-based repayment
Tenure: 1–5 years
Disbursed in full
Usually no collateral
Best For: One-time expenses (medical bills, marriage, travel)
🔁 What is a Line of Credit?
A line of credit (LOC) is a revolving credit facility. You’re approved for a credit limit, and can borrow as needed—paying interest only on the amount used.
Key Features:
Flexible withdrawals
Pay interest only on used amount
Revolving repayment
Can reuse limit after repayments
Ideal for variable or ongoing expenses
Best For: Freelancers, small businesses, emergencies, or unpredictable cash flow.
📊 Side-by-Side Comparison
| Criteria | Personal Loan | Line of Credit |
|---|---|---|
| Disbursement | Lump sum | Withdraw as needed |
| Interest Charged On | Full loan amount | Amount used |
| Flexibility | Rigid | Highly flexible |
| Repayment | Fixed EMIs | Variable, depends on usage |
| Ideal For | One-time large expense | Uncertain, ongoing, or fluctuating need |
| Prepayment Charges | May apply | Often minimal or none |
| Interest Rate | Slightly lower (8%–15%) | Slightly higher (10%–18%) |
💡 When to Choose What?
👉 Choose a Personal Loan if:
You have a defined expense (e.g., wedding, car repair)
You prefer EMIs and want a fixed repayment schedule
You want to avoid credit overuse
👉 Choose a Line of Credit if:
Your cash needs vary month-to-month
You want interest savings on unused amount
You prefer flexible borrowing and repayment
📈 Vizzve Financials Insight: Know What Suits Your Cash Flow
Vizzve Financials, India’s trusted personal finance platform, breaks it down:
🧠 "A personal loan is great for structured borrowers with predictable needs."
🔄 "But for gig workers, freelancers, or seasonal earners, a credit line offers powerful flexibility."
📉 Users who use a line of credit wisely save 22% more on interest over 3 years than those who take repeated personal loans.
✅ Vizzve recommends using their "Borrower Type Matcher" tool to instantly see which product fits your profile
❓ FAQs: Personal Loan vs Line of Credit
Q1: Which option has lower interest rates?
A1: Generally, personal loans have slightly lower rates (8%–15%) vs. lines of credit (10%–18%), but credit lines save more if not fully used.
Q2: Is a line of credit better than a credit card?
A2: Yes. Lines of credit usually have lower interest rates and better flexibility than most credit cards.
Q3: Can I convert a personal loan into a line of credit?
A3: No. These are different products. But banks may offer both—based on your credit profile.
Q4: Which is better for an emergency fund?
A4: A line of credit is better, as you only use funds when needed and pay interest accordingly.
Q5: What does Vizzve recommend for salaried vs freelancers?
A5: Salaried individuals: personal loans. Freelancers/businesses: line of credit.
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Published by Benny on July 3, 2025.
🛡 Powered by Vizzve Financial
RBI-Registered Loan Partner | 10 Lakh+ Customers | ₹600 Cr+ Disbursed