Personal Line of Credit in India: Eligibility, Interest, Rates, Pros & Cons

A line of credit is a revolving loan that allows people to access funds up to a certain limit as needed. Once the money is repaid, you can again borrow cash up to the same limit. It is a flexible loan from a bank or other such institution. Same as with any loan, individuals have to pay interest while using a line of credit. 

For personal lines of credit, one only has to pay interest for the withdrawn amount rather than the whole sum. In the Indian financial context, personal lines of credit serve an essential role for individuals who seek flexible options other than traditional loans and credit cards. They provide quick access to funds during emergency circumstances, such as medical emergencies. Unlike personal loans, which have a fixed tenure and repayment schedule, personal lines of credit allow flexible fund withdrawal and payment.

What is Personal Line of Credit?

Personal lines of credit are a type of line of credit used for personal use. Personal lines of credit give access to funds without taking out large sums up front, providing both flexibility and convenience. Funds can be accessed by cheques, online transfers, and linked accounts. 

How to Apply for Personal Line of Credit

The following aspects are worth considering when you apply for a personal line of credit:

1) Credit Score - Lenders evaluate the worthiness of an individual for a line of credit based on factors like credit score, employment history and income. A higher credit score means higher chances of approval and better terms

2) Budget - Evaluate the amount you need and your ability to repay it. Assess your income, debt obligations and other factors that affect your credit score

3) Research Lenders - Research different institutions providing personal lines of credit to find the one with the most convenient terms and conditions. Look into repayment policies, interest rates, etc.

4) Apply for it - Apply for the personal lines of credit by completing the application process and providing the required documents and necessary details

5) Evaluation - The lenders will evaluate your application to determine the credit limit and interest rates based on the assessment of your financial profile 

6) Borrowing - Once approved, you can start borrowing by accessing the line of credit as needed up to the fixed limit.

Key Features of Personal Line of Credit

A personal line of credit gives you flexible access to funds. You can borrow what you need, when you need it, and pay interest only on the amount you use. The key features are: 

• Flexible: One can access funds anytime and in any amount within the fixed credit limit
• Cost-effective: One has to pay the interest on the amount withdrawn only, instead of the entire sanctioned amount 
• Repayment: One can repay what they used and free up the limit again 
• Payment Requirements: Some lenders only allow the payment of the minimum due
• Interest Fees: Rates are usually lower compared to other gateways, such as credit cards, but they may vary depending on the lender
• Credit Score: Same as others, timely payments improve the credit score, while delays can negatively impact the score
• Fixed Tenure: Personal Lines of Credit are available for a pre-set fixed time period 
• Collateral: As Personal Lines of Credit are unsecured, they do not require assets as collateral 
• Online Management and Quick Access: There are online platforms now that ensure convenience and efficiency in account management, fund withdrawal, and repayment

Eligibility Criteria for Personal Line of Credit

• Credit Score - One needs to have a minimum credit score of 690 and a good record of timely payments
• Proof of Income and Employment - One needs to provide documents to prove they have a stable source of income and such other factors.
• Financial Standing - Lenders may assess the net worth, cash-on-hand and debt-to-income ratio to ensure that one can comfortably make repayments.

Required Documents for Personal Line of Credit

To apply for a personal line of credit, you’ll need to submit a few basic documents that help lenders verify your identity, income, and creditworthiness.

1) Proof of Identity (any one)

• Aadhaar Card
• Pan Card
• Passport
• Voter ID
• Driver's License 

2) Proof of Address (any one)

• Aadhaar Card
• Voter ID
• Recent Utility Bills

3) Proof of Income (any one)

• Last 3 months' salary slip
• 3-12 months' bank statements 
• Income Tax Returns
• Employee ID Card

Interest Rate of Personal Lines of Credit

Personal Lines of credit generally align with the interest range of unsecured personal loans, though often with slightly lower rates than credit cards

• Banks - Banks offer around 12% to 20% per annum 
• NBFCs - offer around 14% to 24% per annum 

Rates may vary across lenders and financial institutions due to RBI policy changes, market changes and individual credit scores.

How is Interest Calculated?

Interest in Personal Lines of Credit is imposed only on the amount withdrawn and not the fully approved amount. Calculation of interest depends on two features:

Daily or Monthly Interest Accrual

Some lenders calculate interest on a daily reducing balance, in which they charge interest on the outstanding amount each day. But some lenders use a monthly reducing balance and charge interest on the outstanding amount at the end of each month.

Revolving Nature of Credit

Personal Lines of Credit have a revolving structure, meaning one can withdraw, repay and withdraw again within the set limit. Interest is charged as soon as one withdraws money and is decreased when it is repaid, as it is only charged on the remaining outstanding balance. Interest applies solely to the amount one borrows

Factors Affecting Interest Rates

Interest rates depend on multiple personal and market-related factors. Here’s what lenders look at:

• Credit Score: A high credit score helps. Timely repayments signal low risk. This leads to lower interest rates.
• Income Stability: Stable and verifiable income matters. Salaried and self-employed borrowers with steady earnings often get better rates.
• Bank Relationship: An existing relationship builds trust. Savings accounts, past loans, and long banking history can unlock favourable rates.
• Loan Amount & Repayment Behaviour: Higher credit limits and a clean repayment record help. Missed EMIs or high debt push rates up.
• Market Conditions: High competition lowers rates. Tight liquidity or higher risk raises interest costs.

Pros and Cons of Personal Lines of Credit 

Use Cases for Personal Lines of Credit

• Medical Emergencies: Provides quick access to funds for sudden health needs such as hospitalisation, surgery, or specialised treatment, helping reduce financial stress.
• Business Cash Flow Management: Useful for small business owners, freelancers, and self-employed individuals to manage short-term needs like operational expenses or salary delays, ensuring smooth operations.
• Education or Travel Expenses: Can be used for tuition fees, study materials, or short-term travel plans without committing to a full personal loan.
• Home Repairs and Renovation: Ideal for urgent repairs or renovation projects with unpredictable costs, allowing flexible withdrawals without repeated approvals.
• Seasonal or Irregular Income: Helps freelancers and seasonal workers manage daily expenses or emergencies during low-income periods, supporting financial stability.

Difference between Personal Loan and Personal Line of Credit 

Difference Between Personal Line of Credit and Credit Card

Conclusion 

With interest only on the money withdrawn and spent, a personal line of credit provides more control in comparison to other traditional personal loans. While interest rates are higher compared to secured loans, a Personal Line of Credit remains an essential tool for managing sudden and short-term expenses. 

Using My Mudra makes the entire process even more efficient and convenient. We help you connect with some of the best personal line of credit providers, including HDFC Bank, ICICI Bank, Axis Bank and State Bank of India. Quick, mostly paperless application, transparent information about interest and fees, and the options to compare multiple Banks/NBFCs on a single platform make accessing credits smoother and faster. Apply for personal line of credit now!

Also Read:
- Difference Between Line of Credit, Credit Card & Loan (With Examples)
- What is a Line of Credit? Meaning, Types, Interest Rates & How It Works (2026 Guide)