Credit line

Line of credit vs credit card vs short term loans: which one to choose?

The three options carry different risks and costs. Therefore, experts say that one should evaluate before making a choice.

The coronavirus outbreak has left people in dire straits due to job loss, pay cuts and business closures. As this has led to erratic income, industry experts say it has increased the demand for monetary support to cover the monthly shortfall. However, people today have many options such as credit cards, lines of credit, and short-term loans to meet fixed monthly expenses.

The three options carry different risks and costs. Therefore, experts say that one should evaluate before making a choice.

Raghuvir Gakhar, CEO of PC Financial, a digital financial services platform, says, “With a short-term loan, you can budget all the expenses well in advance, but it’s not the same with a credit card or line of credit where expenses can be higher or lower depending on usage.Even the interest rate is much lower in the case of loans.

To get a credit card, you have to have a good credit rating, pay annual fees and a high penalty if payment is delayed. On top of that there is an inherent risk of overspending, loss of the card, misuse and a long list of terms and conditions. Also, we need money immediately and we asked for the credit card, it will take at least a month to reach it.

However, says Gakhar, “It’s not so easy for those who don’t have enough credit. For them, fintech platforms have made it easier to secure credit with opportunities for meaningful borrowing options to meet urgent financial needs, regardless of where a customer is on the credit spectrum.

He further adds, “With options like lines of credit that look like unsecured loans, individuals can borrow in a range as low as Rs 2,000 to Rs 5 lakh.”

Some companies also offer innovative solutions such as paying online on a merchant site or even scanning and paying at any UPI barcode. This enables a digital credit card-like experience for any individual. Unline a loan, one can use the given credit loan over and over again in the given period of time.

Finally, short-term unsecured loans are available for new borrowers with minimal KYC. Without a credit card line, one can receive short term loans in 10-15 minutes.

Gakhar says, “Another advantage is that these are unsecured loans, which are not secured by collateral pledged by the borrower. Short-term loans are suitable for financing large purchases, consolidating credit card debt, or any other personal payment that cannot be made immediately with the given income.

In short, experts say that the borrower should consider all these factors before making a decision. All options have their pros and cons, but as a borrower you need to decide which is the requirement based on your needs and make an informed decision.

Financial Express is now on Telegram. Click here to join our channel and stay up to date with the latest Biz news and updates.