Nowadays for individuals with a healthy credit score, getting money from banks and other financial institutions is a breeze; though the same is not true for the underserved and unserved customers who have limited access to credit. Thanks to the advent of new-age fintech companies, now it is possible to avail meaningful borrowing options to meet urgent financial needs irrespective of where a customer lies in the credit spectrum. The traditional options used to be the likes of credit cards and personal loans, amongst others have been augmented by new options with fintech companies that are going beyond the credit score and offering a credit line or line of credit which is now set to enter mainstream finance.
Credit Line at a glance
Essentially, credit line is a loan product that enables salaried and self-employed individuals even if they have a stressed credit history or completely new to credit to provide access to the line of credit that they can draw upon at any time they need. These credit lines range from as low as Rs 2,000 to Rs 5 lakh. These lines of credit offered by fintech companies have gone beyond the withdrawal of the money into the bank but are offering innovative solutions like paying online at a merchant site or even scan and pay at any UPI barcode as offered by FlexPay. This is enabling a digital credit card like experience for the customers who prior to this simply didn’t have access to credit cards. Customers can apply for these loans digitally on their phones, even with incomes as low as Rs 8,000.
Credit Line vis-à-vis Credit Cards
Credit Cards are available for only a small population of super-prime consumers in India. Currently, there are only 55 million credit card holders resulting in a penetration of about 4 percent of the Indian population. The digital lines of credit being offered by the new-age fintech companies are expanding the access to credit card like product to Prime, Near-Prime, Sub-prime and new to credit customers. One of the biggest advantages of credit cards is the convenience and flexibility the product offers and the ability to use it either for purchases or cash advances, the credit lines are now able to offer these very advantages for the under-served customers. Moreover, the credit line products have only expanded the reach of merchants, while they are being accepted at various online stores as one of them has built its product on the UPI infrastructure they are able to offer almost universal acceptance across all physical stores.
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Credit Card v/s Credit Line: Which is The Best Option For Millennials?
Conclusion
The option of credit line or credit card is most likely to depend on the customer's credit score. As only the customers with exceptional credit history get approved for bank credit cards, for the rest of the customer's credit lines that offer a digital credit card like experience are the only option. Previously, the under-served customer only had access to personal loans which offer fixed EMI payments. So in opting for a credit line the customers can get the flexibility to draw when they need and only the amount they need. This, if used judiciously, will result in lower outstanding credit and more importantly since the interest fees are only paid on the utilized amount could result in lower interest and fees short-term loans or personal loans. The credit lines offer a further distinct advantage of providing the customers with the flexibility to choose their payment amount and even pay-off without any pre-payment penalties. Whichever product a customer chooses they need to bear in mind that borrowing money, in any form, comes with great responsibility. One’s history as a customer will always be a factor whenever you apply for a loan or other financial products from financial institutions.
The author, Anil Pinapala, is Founder and CEO at Vivifi. The views expressed are personal.
On this occasion, we can inform you about Credit Card versus Credit Line: Which is The Best Option For Millennials?, please read to the end!.
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