In a second-floor apartment in Delhi’s Lajpat Nagar, 32-year-old Rajeev Mehta runs his graphic design business from a borrowed desk. His laptop is old. His client payments come in late. But he gets by—largely due to a revolving credit line of ₹3 lakhs from his bank. “If the payments don’t come in on time, I dip into it. Then I pay it back the next week,” he says.
Across India, millions like Rajeev rely on credit lines, both secured and unsecured, to bridge cash flow gaps. But as the popularity of these financial products rises, so do the pitfalls. Many users fall into a cycle of interest accumulation, minimal repayments, and eventual over-indebtedness. Understanding how to use credit line wisely is no longer optional—it is essential.
Why Credit Lines Are Becoming Mainstream in India
In the last five years, India has seen a surge in flexible credit products. According to an industry-wide financial report, more than 18% of salaried millennials and small business owners in metro cities have access to credit lines through banks, NBFCs, or fintech platforms. The appeal lies in the flexibility: a credit line allows users to borrow, repay, and re-borrow within a pre-approved limit, much like a credit card but with fewer restrictions.
But while the financial structure looks convenient, it is also misunderstood.
“People mistake credit lines for income. They use it to maintain a lifestyle they cannot afford, and that’s where the problem begins,” says a financial planner based in Bangalore who handles over 70 mid-income client portfolios.
What Exactly Is a Credit Line and How Does It Work?
A credit line is a preset borrowing limit extended by a bank or financial institution. Unlike a traditional loan, you are not handed the entire amount at once. Instead, you draw what you need, when you need it. Interest is charged only on the amount you use—not the entire approved sum.
There are two primary types in India:
- Secured Credit Line: Backed by collateral like FDs, property, or gold.
- Unsecured Credit Line: No collateral needed; generally comes with higher interest rates.
The interest rates can range from 12% to 22% per annum, depending on the lender, risk profile, and repayment history. Most lines come with tenures between 12 and 60 months and are repaid through EMIs or bullet payments.
How to Use Credit Line Without Falling Into Debt
1. Borrow With a Purpose, Not Emotion
It is tempting to use your credit line to fund lifestyle purchases—a phone upgrade, travel bookings, or impulse spending on shopping festivals. That is precisely how users get trapped.
Only draw from the line when:
- There’s a temporary cash crunch
- You are investing in income-generating assets
- You are covering delayed payments or invoices
Always have a repayment strategy in place before you borrow.
2. Track Your Interest Clock
Many Indian borrowers ignore the fact that interest starts accruing immediately after the money is drawn. This differs from a credit card that might offer 30 to 50 days of grace.
A Mumbai-based independent contractor shared her wake-up call. “I kept taking small amounts thinking I’ll pay it all next month. I didn’t realise the interest kept piling daily. By the end of the year, I had paid ₹47,000 in interest alone,” she recalled.
Review your bank’s terms closely. Consider setting a weekly repayment schedule instead of waiting for the month-end bill.
3. Never Use a Credit Line to Repay Another Loan
This is a cardinal sin. A credit line is not meant for rolling over other debts. Using it to pay off credit card bills or EMIs is a red flag. It triggers a debt snowball effect—one that leads many to default and face long-term credit score damage.
Financial coaches recommend applying the 50-30-20 rule: Use only 20% of your credit line limit at a time. The rest should be considered untouchable until the amount is cleared.
The Hidden Costs Most Borrowers Ignore
While the interest rates are often marketed as “competitive,” the true cost of a credit line includes:
- Processing Fees: Often between 1-3% of the approved limit
- Renewal Charges: Yearly fees in case of auto-renewal
- Prepayment Penalties: Some lenders charge you for early closures
- Late Payment Charges: Up to 2% monthly on overdue amounts
These figures add up. A Bengaluru-based marketing freelancer discovered that while her credit line charged only 14% interest, the annual cost of borrowing touched nearly 22% when all the fees were accounted for.
How Is a Credit Line Different From a Credit Card?
While both offer revolving credit, key differences exist:
| Feature | Credit Card | Credit Line |
| Collateral | Unsecured | Secured or Unsecured |
| Interest-Free Period | Up to 50 days | None |
| Usage Mode | Swipe-based | Direct bank transfer |
| Charges | Annual fees, late payment, etc. | Processing fees, usage-based interest |
| Repayment | Minimum due + EMI | Flexible, sometimes bullet or EMI |
Case Study: A Tale of Two Borrowers
Ankita Sharma, a 29-year-old content creator in Pune, uses her ₹2 lakh credit line to navigate freelance work irregularities. “I maintain a sheet of every rupee used and cleared. I’ve never gone above ₹60,000 at any point,” she says. She treats it as liquidity insurance, not an income substitute.
On the other hand, Manish Bhargava, a small shop owner in Kanpur, took out ₹1.5 lakh to renovate his shop. But he dipped into the full amount during the wedding season rush and delayed repayments. Within six months, his total outstanding ballooned with penalties and high interest. “I thought I was managing well. Suddenly, the lender suspended my limit, and I had no cash flow,” he shared.
The difference lies not in the tool, but the discipline of usage.
Related – How to Get a Business Loan Without Collateral in India
When Is It a Good Idea to Take a Credit Line?
- Expect irregular income (freelancers, contractors)
- Need a short-term business bridge (inventory, payroll)
- Want flexible emergency funding without large EMIs
- Comfortable managing multiple payments within a strict budget
It is not advisable if you:
- Struggle with budgeting
- Are already paying EMIs on more than 50% of your monthly income
- Tend to spend impulsively
- Have an unstable job or low savings buffer
How to Set Rules for Yourself When Using Credit
Here is a framework for Indian users who want to develop internal safeguards while using a credit line:
- Set a Limit Within the Limit: Never use more than 30% of your total sanctioned line.
- Keep Automatic Repayments: Link to your main account with monthly deductions to avoid missed payments.
- Add It to Your Budgeting App: Whether it is Walnut or MoneyView, track your usage daily.
- Treat It Like a Loan, Not an Allowance: Each rupee borrowed should have a purpose and timeline.
- Pause Usage After Every Clearance: Give yourself a cooling period before redrawing.
Credit Scores and Credit Lines: What You Need to Know
RBI data suggests that over 65% of defaulters under the age of 35 had revolving debt like credit cards or unsecured credit lines. Each default impacts your CIBIL score, which determines your future loan eligibility.
Late payments on credit lines are reported to credit bureaus the same way as missed EMIs on loans. Regular, timely payments boost your score—but chronic delays can reduce your creditworthiness for years.
For young Indians trying to build a credit profile, a well-managed credit line can be a tool to create a solid history. But it demands maturity and restraint.
Closing Thought: A Tool, Not a Crutch
When used wisely, a credit line can offer breathing space in difficult times. It can help a business survive a bad quarter, cover emergency bills, or offer relief when income is delayed. But when used without structure, it quietly builds pressure that can erode confidence, stability, and mental wellbeing.
This is not only about numbers. It is about dignity. About knowing that you have the power to choose when to borrow and when to hold back. The financial system might not always feel built for you—but the discipline you build for yourself is where true control begins.
Borrow gently. Spend with intention. Repay with consistency. And remind yourself—credit is a support, not your identity.
In the end, the goal is not just to have access to funds. It is to have the freedom to live without fear.
