Personal Loan vs. Dropline Overdraft or Flexi Loan- Which is Better?
5 min read | 2 months ago
We all run into issues in life where we feel an urgent cash crunch. It could be something like medical expenses, remodelling the home or even just a long-awaited tour abroad. No matter what the reason may be, people occasionally need to take out quick personal loans just so they can cover their expenses for a while. When times are hard, personal loans, dropline overdrafts or flexi loans are the best options at your disposal. But which one is best for you? In this blog post, we'll weigh up these three to help you make the right decision. So, let's begin.
What is Personal Loan?
A personal loan is a type of loan that people take out for purely personal reasons because it's a purely totally unsecured loan. Personal loans are usually offered by banks, SFBs like Unity Small Finance Bank, or other financial institutions like NBFCs, and the terms often differ from lender to lender. These conditions mainly depend on your credit status and some other factors such as your income level, work history, and total debt loads-if any.
What is Flexi Loan and Dropline Overdraft?
Flexi loan and dropline overdraft are two types of loans that offer a line of credit. A line of credit is a form of revolving credit facility that gives you a certain amount to spend. Funds can be withdrawn from the line of credit whenever it is convenient for you using a flexi loan. Interest is charged solely on the amount that a borrower uses and repays to borrow money with dropline overdraft loans. The dropline overdraft is similar to a flexi loan, but it is linked to your bank account. Just as with one of those, you can withdraw funds from the account when you need them and only pay for what has been borrowed.
Which is Better - Personal Loan vs Dropline Overdraft or Flexi loan?
Now that you know what each option entails, let's take a closer look at the pros and cons of each option.
Personal Loan Pros:
Before applying for a personal loan, there are a few things you should keep in mind to ensure you make the best decision for your financial situation.
1.Fixed Interest Rate: With a personal loan, you get a fixed interest rate, so the EMI being charged and paid back monthly will continue to remain the till the loan maturity. This makes it easier and predictable for you to manage your budget, as you know what to expect right from the beginning.
2.Structured Repayment Plan: Personal loans come with a structured repayment plan, which means that you know exactly when the loan will be paid off. This makes it easier to manage your finances and avoid falling behind on payments or before long even defaulting altogether.
3.No Collateral Required: Personal loans are unsecured loans, which means that you don't have to provide the bank or financial institution with anything in exchange for security.
Personal Loan Cons:
Before applying for a personal loan, there are a few things you should keep in mind to ensure you make the best decision for your financial situation.
1.Higher Interest Rates: Personal loans generally come with higher interest rates compared to other types of loans. This means you will pay more in interest over the life of the loan.
2.Longer Processing Time: Personal loans can take longer to process compared to other types of loans. This means you may have to wait longer to get the funds you need. The only exception this are quick personal loans with minimal documentation which get approved with 1-2 days.
3.Strict Eligibility Criteria: Personal loans come with strict eligibility criteria, which mean your application for loan in banks, may get rejected if you have a poor credit score or a low income.
Flexi Loan and Dropline Overdraft Pros:
1.Flexible Repayment: With a flexi loan or dropline overdraft, you have the flexibility to repay the loan on your own terms. You can borrow and repay funds as and when you need them.
2.Lower Interest Rates: Flexi loans and dropline overdrafts generally come with lower interest rates compared to personal loans. This means you will pay less in interest over the life of the loan.
3.No Fixed Repayment Schedule: Flexi loans and dropline overdrafts don't come with a fixed repayment schedule, which means you have more flexibility in managing your finances.
Flexi Loan and Dropline Overdraft Cons:
1.Variable Interest Rates: Flexi loans and dropline overdrafts come with variable interest rates, which mean the interest rate can change over time. This makes it harder to budget and plan your finances.
2.Higher Fees: Flexi loans and dropline overdrafts can come with higher fees compared to personal loans. This means you will pay more in fees over the life of the loan.
3.Collateral Required: Flexi loans and dropline overdrafts may require you to put up collateral to secure the loan. This means you may have to put up your home, car, or other assets as collateral.
Conclusion
The bottom line to the debate of choice between personal loan, flexi loan, or dropline overdraft depends on your individual financial needs and circumstances. If you need a fixed amount of money and prefer a structured repayment plan, a personal loan may be the right option for you. If you need more flexibility in borrowing and repaying funds, a flexi loan or dropline overdraft may be the better option. However, be sure to consider the pros and cons of each option and shop around for the best interest rates and terms before making a decision.
FAQs
1.What is the maximum amount that can be borrowed in a personal loan?
The maximum amount that can be borrowed in a personal loan depends on the lender and the borrower's creditworthiness.
2.Can I withdraw money from my Flexi loan account as and when required?
Yes, financial institutions are offering the same interest rates, repayment terms, and loan amounts to both men and women.
3.What are the interest rates for Dropline Overdraft?
The interest rates for Dropline Overdraft are generally higher than personal loans, but it depends on the lender and the borrower's creditworthiness.
About Unity Small Finance Bank
Unity Small Finance Bank is committed to making banking simpler and more accessible for everyone. Our services include Savings Account, NRI account, Current Account, Fixed Deposits, and Personal Loans offering flexible tenures and attractive interest rates. We also offer financing options like MSME Loans and Microfinance to support businesses and underserved communities. Learn more about Unity Small Finance Bank here.
