Credit line 101: A beginner’s guide to understanding and utilising it

Credit line 101

In case of urgent fund requirements, you may choose to opt for personal loans that are particularly helpful when you know the amount to be borrowed. However, in cases where the amounts are unknown, a line of credit can be more beneficial. If you find yourself at the crossroads of financial decision making, understanding what a credit line is and how it can work to your advantage becomes crucial. Explore the definition, benefits, utility, qualification criteria, and more of credit lines and see how credit lines can be a valuable financing option.

What is a credit line?

A credit line or a line of credit is a flexible borrowing arrangement that offers you access to a predetermined amount of funds, known as your credit limit. You have the flexibility to withdraw funds as needed, and interest is charged only on the amount borrowed. Thus, a credit line offers you the convenience and liberty to opt for an amount based on your requirements. 

If you are looking to borrow funds for some approaching expenses, IndusInd Bank’s INDIE app is among the top digital platforms that offer a credit line of up to ₹5 lakh. You can download the app on your smartphone, register with a few simple steps, and get easy credit online. In addition, with INDIE, you can choose a flexible tenure from 3 months to 36 months to repay your borrowed amount. 

What are the benefits of a credit line?

In these modern times where, financial uncertainties are quite common, credit lines can be a suitable instrument for meeting your varied requirements. Here are the notable benefits of a credit line. 

  • Flexibility in usage

A credit line grants you the freedom to use funds as per your requirements. Whether it’s tackling unexpected expenses, making home improvements, or funding educational expenses, the versatility of a credit line sets it apart from other forms of credit.

  • Interest only on utilised amount

Unlike a conventional loan where interest accrues on the total borrowed sum, with a credit line, interest is charged only on the amount you withdraw. This can result in significant cost savings, particularly if you don’t utilise the entire credit limit.

  • Revolving credit

A credit line operates on a revolving basis. As you repay the borrowed amount, it becomes available for use again. This revolving nature provides an ongoing source of funds without the need to reapply for a loan.

  • Establishing and building credit history

Effectively managing a credit line contributes positively to your credit history. Timely repayments and responsible use can enhance your credit score and open doors to more favourable terms on future credit applications.

  • Emergency fund supplement

A credit line can serve as a safety net during unforeseen financial challenges. Instead of resorting to high-interest credit cards or other loans, having a credit line can provide a more affordable option for managing emergencies.

When is a credit line useful?

While a credit line doesn’t have a constraint of usage, considering it in the following scenarios can be very useful:

  • Unforeseen expenses: For sudden medical bills, car repairs, or home maintenance.
  • Business ventures: Funding small business initiatives or addressing cash flow gaps.
  • Home renovations: Undertaking home improvement projects or renovations.
  • Education expenses: Covering tuition fees or educational expenses.

How to qualify for a credit line?

Key factors for qualifying for a credit line include:

  • Credit history: A robust credit history enhances your chances of approval.
  • Income and employment: Having a stable income and employment history also increases your chances of qualifying.
  • Debt-to-income ratio: Banks assess your ability to manage additional debt relative to your income. So, maintaining a low debt-to-income ratio can prove beneficial. 

Conclusion

A credit line can be a valuable instrument in your personal finances. Its flexibility, cost-effectiveness, and versatility make it an appealing choice for financial empowerment. However, it is important to approach it with the understanding that it is a type of loan at the end of the day and needs to be managed responsibly. 

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