Credit Line vs Credit Card vs Short-Term Loans: Why credit line scores over other options

While people are aware of credit cards and term loans, very few people know that credit line or line of credit may be availed by individuals also.

It said 13 banks hold the largest share of the portfolio in micro-credit with a total loan outstanding of Rs 1,13,271 crore, which is 43.67 per cent of total micro-credit universe.

In case you have irregular income or during the torrid time of Covid-19 pandemic have faced salary cut or job loss, you may need some monetary support to cover the shortfall in the monthly income to meet the fixed monthly expenses.

There are many options to get money on credit to meet the shortfall. Some of the options are credit line, credit card and short-term loan.

While people are aware of credit cards and term loans, very few people know that credit line or line of credit may be availed by individuals also.

A credit card provides an excellent opportunity to defer payments on purchase of goods and services without paying any interests or charges, provided that the credit card dues are paid on time.

Short-term loans are also well known ways of getting money on credit but the borrowers need to pay EMIs on time that includes a substantial amount of interest in the initial phase of the repayment period.

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Although the lack of knowledge makes credit line a less accessed product, credit card facilities can’t be enjoyed by every bank customers and getting a short-term loan becomes difficult without repaying the existing one.

“Access to credit has always been a major challenge for the underserved population of India despite the advent of new tools and technologies. However, with new-age solutions like credit lines and short-term, borrowers can get easy access to small-ticket credit options ranging from Rs 2,000 to Rs 2 lakh by going through a seamless digital application process, with same-day approval of the credit amount. Credit cards, on the other hand, are also a great credit tool and certainly boosts your purchasing power. However, not every individual gets a credit card. There are only 55 million Indians with a credit card as the banks that issue these cards only tend to offer credit cards for customers with really good credit history – super-prime consumers,” said Anil Pinapala, Founder & CEO, Vivifi India Finance Private Limited.

Less expensive

Credit lines either have no fixed charges or low one-time charges and lower interest is levied in comparison to short-term loans and on unpaid dues on credit cards.

“For non-prime consumers and New to Credit customers they are left with digital lending options of both short-term loans and lines of credit. However, the credit lines are typically much better for the customers as the fees are typically charged only one time 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 hence becomes a very costly proposition,” said Pinapala.


Unlike short-term loans, credit lines provide opportunity to use any amount of money up to the limit and repay within the set limit or earlier without paying any prepayment charges.

“Another advantage of a Line of Credit over a short-term loan is the flexibility in repayments, customers can use this money to meet various expenses and choose to pay off the loan as quickly or as slowly as they want the user only needs to pay interest on the amount utilised. The user can also prepay the entire amount at once without worrying about any prepayment penalties. Whereas in a short-term loan the customer has to repay the entire principal and all the interest/fees sometimes in a 2 month period which is a huge burden. Also, in a line of credit customers can choose only to pay interest and fees for a given month if they have any cashflow issues, this ensures that their credit score isn’t impacted but with a short-term loan if the customer short pay their EMI it will be lower their credit score,” said Pinapala.

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