Current Account vs Line of Credit: What’s the difference?

Posted on Thursday, April 27th, 2023 | By Indusind Bank

In the dynamic and competitive business landscape of India, companies require access to various financial tools to manage their cash flow and operations efficiently. Two such financial tools that are commonly used are current account and lines of credit. Although they both offer certain benefits, they serve different purposes and have distinct features that set them apart. In this blog, we will explore the differences between current accounts and lines of credit in the context of the Indian business landscape. 

Current Account

A current account is a type of bank account that is designed for businesses to manage their daily financial transactions. This account is suitable for businesses that have high daily transaction volumes and require frequent fund transfers. Current accounts allow businesses to deposit and withdraw money without any restrictions on the number of transactions or the amount of money involved. Typically, current accounts do not offer any interest on the balance maintained, as the primary purpose is to facilitate smooth financial transactions. Current accounts are also associated with a range of value-added services such as overdraft facilities, cheque book issuance, and online banking services. 

One of the significant advantages of having a current account is that businesses can enjoy a range of value-added services. For instance, businesses can use overdraft facilities to meet their urgent cash needs without having to worry about insufficient funds. Additionally, cheque book issuance services are beneficial for businesses as it allows them to issue cheques to suppliers and customers, making transactions simpler and more convenient. Online banking services, on the other hand, make it easier for businesses to monitor their transactions and manage their accounts from anywhere, anytime. 

IndusInd Bank Current Account offers a range of current account options tailored to meet the unique requirements of various types of businesses. These include:  

• ‘My Account, My Number’ feature which enables you to choose a customized current account number that is simple to remember. 
• Group multiple businesses together under a single account with shared authorized signatories for seamless management. 
• Pre-approved business loans* at attractive interest rates to help you meet your immediate capital requirements without any inconvenience. 
• Cheque and cash pickup and drop-off service that you can request from the comfort of your office. 
• User-friendly mobile and internet banking interface to let you manage your account effortlessly from any location and at any time. 

That’s not all! You can open IndusInd Bank Current Accounts using Video KYC and enjoy 100% digital application process. 

Open IndusInd Bank Current Account Now  

Line of Credit
A line of credit is a type of loan that is extended to businesses to meet their short-term financing needs. It is a flexible borrowing arrangement that allows businesses to borrow money as and when they need it, up to a predetermined credit limit. Unlike traditional loans, businesses are not required to use the entire credit limit, and they only pay interest on the amount they have borrowed. The credit limit and the interest rate are based on the creditworthiness of the borrower and their ability to repay the loan. Lines of credit are typically used to manage cash flow, pay suppliers, and finance short-term projects. 
 
One of the most significant advantages of a line of credit is that it offers flexibility in terms of borrowing and repayment. Businesses can borrow as much or as little as they need, up to the credit limit. Additionally, they can repay the loan in a manner that suits their cash flow, making it an attractive financing option for businesses that need short-term funds. Moreover, lines of credit offer lower interest rates than credit cards, making it a more affordable financing option. 
 
Differences between Current Account and Line of Credit 
Now that we have understood the basic definitions of current accounts and lines of credit, let’s explore the differences between the two: 
 
1. Purpose: The primary purpose of a current account is to facilitate daily financial transactions, while a line of credit is used to meet short-term financing needs. 
 
2. Interest Rates: Current accounts generally do not offer any interest on the balance maintained, whereas lines of credit charge interest on the amount borrowed. 
 
3. Flexibility: Current accounts offer flexibility in terms of the number of transactions and the amount of money involved, while lines of credit offer flexibility in terms of the amount borrowed and the repayment schedule. 
 
4. Collateral: Current accounts do not require any collateral, while lines of credit may require collateral to secure the loan. 
 
5. Cost: Current accounts are generally free or have nominal fees associated with them, while lines of credit may have higher fees and interest rates associated with them. 

Conclusion: 
In conclusion, current accounts and lines of credit are both useful financial tools that businesses can use to manage their cash flow and operations. While current accounts are designed for daily financial transactions and offer flexibility and value-added services, lines of credit are used for short-term financing needs and offer flexibility in terms of borrowing and repayment. Understanding the differences between the two can help businesses make informed decisions about which financial tool is best suited for their needs. Ultimately, the choice between a current account and a line of credit depends on the specific financial requirements and goals of the business. 

Disclaimer: The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Hence, you are advised to consult your financial advisor before making any financial decision.  IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information.