What Is A Line Of Credit – Flexible Borrowing For Individuals And Businesses

A line of credit is a type of flexible credit where one can draw money from a pre-approved limit, repay, and then draw again, but this time he will be charged interest only for the amount utilised. A line of credit in India normally takes the form of an overdraft facility, where ICICI Bank, SBI, and other banks provide their customers with different types of overdraft facilities based on whether it is linked to their salary or Fixed Deposits.

Key Takeaways

• ICICI Bank's FlexiCash is a pre-approved overdraft facility for selected customers, with the limit determined based on the bank's eligibility criteria., and its official example shows a ₹10,000 draw for 15 days on a ₹1,00,000 limit at 11.5% per annum costing just ₹51.37 in interest.
• SBI's online overdraft against eligible time deposits is charged at 1% above the applicable deposit rate, with a minimum loan amount of ₹5,000 and a maximum online overdraft limit of ₹5 crore.

Anyone dealing with unpredictable cash flow, whether it's a salaried employee bridging a gap between paydays or someone holding a Fixed Deposit who needs quick funds, eventually looks into what is a line of credit and whether it fits their situation. This guide is meant for all Indians seeking answers about how this service works, its various forms, and who actually meets its requirements. Here you can find all the information regarding its functioning, types used by various banks, eligibility criteria, and comparison with a normal personal loan.

What is a Line of Credit?

Line of credit is a credit facility which allows borrowing up to a certain limit, and then repaying and borrowing again from the same facility. It is a revolving line of credit service, as opposed to term loan which is a one-time borrowing service.

 In India, this facility is most commonly offered as an overdraft, tied to your salary account or a Fixed Deposit. ICICI Bank's own page on its FlexiCash facility describes it as a way to cover unexpected expenses with ease, with the OD account linked directly to your salary account for seamless repayment.

How Does a Line of Credit Work?

A line of credit works by letting you draw funds as needed up to your approved limit, with interest charged only on the portion you've actually withdrawn.

Here's how this plays out in practice, based on ICICI Bank's own FAQ page:

1. The bank sanctions you a credit limit based on your salary, Fixed Deposit, or banking relationship.
2. You draw funds whenever you need them, up to that limit.
3. Interest typically accrues on a periodic basis, often monthly, though the exact frequency and calculation method can vary depending on the lender and the specific facility you're using. For ICICI Bank's overdraft against salary specifically, this interest applies only to the amount you've drawn, not your entire sanctioned limit.
4. Charges beyond interest, including any maintenance or processing fees, depend on the specific lender and facility, so checking your own loan agreement or the bank's fee schedule directly is worth doing rather than assuming none apply.
5. As you repay what you've borrowed, your available limit becomes usable again, with automated annual renewal.

This structure is exactly what makes a line of credit different from a term loan, since ICICI Bank's own FAQ confirms there's no fixed EMI attached to this facility at all.

What are the Types of Line of Credit?

The main types of line of credit in India include salary based overdrafts and Fixed Deposit backed overdrafts, each priced differently depending on the bank and the security involved.

Here's how each type works across different banks:

• Salary based line of credit: ICICI Bank's FlexiCash offers a limit up to 3 times your net salary, with the mean interest rate for accounts opened in Q2 FY25 sitting at 13.02% per annum.
• Fixed Deposit backed line of credit: SBI's online overdraft against eligible time deposits is charged at 1% above the applicable deposit rate, with a minimum loan amount of ₹25,000 and a maximum online overdraft limit of ₹5 crore.
• Salary based overdraft with a fixed limit range: Some banks offer facilities within a set range, such as ₹25,000 to ₹1,25,000, charged between 15% and 18% per annum, calculated only on the utilised amount.

Each type suits a different situation, salaried employees needing short term flexibility through their existing salary relationship, and FD holders wanting cheap access to funds without breaking their deposit.

Who is Eligible for a Line of Credit?

Eligibility for a line of credit depends on the type, ranging from holding a salary account with the bank to owning a Fixed Deposit that meets the minimum value requirement.

For a salary based line of credit like ICICI Bank's FlexiCash, eligibility is assessed based on:

• Your existing salary or banking relationship with the bank
• Your credit score
• Any other existing financial obligations you're already carrying

For a Fixed Deposit backed line of credit, SBI's official page confirms you simply need an existing Fixed Deposit meeting the bank's minimum value of ₹5,000, without needing extensive income documentation, since the deposit itself secures the facility.

Line of Credit vs Personal Loan: What's the Difference?

A line of credit charges interest only on the amount you've drawn and lets you reuse the limit, while a personal loan gives you a fixed lump sum with interest on the full amount from day 1.