Both Personal Loans and Credit Card Loans are two of the most common unsecured loan options. However, it is common to get into a fix- which of these is more useful/ feasible? Let’s try to find out a definitive answer to this common query in this article and find out if Personal Loan or Credit Card loan is ideal for your current situation.
What is Personal and Credit Card Loan?
A Personal Loan is a loan which an individual can take to fulfill his personal needs including marriage expenditures, medical bills, and tour expenditures. While, a cash advance against the credit limit on your card is a Credit Card Loan. A lot of banks also offer preapproved Credit Card Loans owing to your credit history.
The application process for a personal loan is simple. All you need to do is visit the bank with the required documents and submit the application. However, it is always recommended to get information about the interest rate, loan amount limits, and loan tenure limits beforehand, to make a well-informed decision.
You can alternatively opt for online application process. Just fill up the information and apply for the Personal Loan from home. Different banks offer different Personal Loans Interest Rates. The loan amount and tenure also vary from bank to bank. Usually, a person can take a Personal Loan for the maximum loan tenure of 5 years. Banks also charge a processing fee on Personal Loans. It generally takes 2-3 days for a Personal Loan to disburse.
The process of Credit Card Loan is rather simpler. If you have a Credit Card, you are good to go and spend the money through the Credit Card. However, the Credit Card has a limit on the amount, you can spend. There is no need for additional paperwork for cash advance or loan against your card. Thus, if you have a Credit Card then you are entitled to take a Credit Card Loan, by default. You simply have to confirm the limit of the amount you can spend. If you repay before the free credit period, there will be no interest on the borrowed amount.
Now let’s look at the similarities and dissimilarities of the two financial products below:
- Both Personal Loans and Credit Card loans are the short term loans which can be acquired for a specific time.
- The interest rate for both types of loans is almost similar.
- These loans are unsecured loans and you need not declare assets to avail this loan.
- Both loans can be borrowed for emergencies.
- You can pre-close the loan any time before the tenure.
Credit Card Loan vs. Personal loan
* An individual has to bear the charges in the form of processing fee while applying for the Personal Loan. These charges vary from bank to bank and could be as high as 3 % of the loan amount. While, there are no such charges for the Credit Card Loan.
* The borrowers also face pre-payment charges if they want to repay the loan before the loan tenure ends. These charges also vary depending on the bank. Pre-payment charges could be as high as 5 % of the outstanding balance. While a Credit Card user does not face such a situation. With the Credit Card Loan, you can just pay the due amount earlier and be done with it while paying absolutely nothing as pre-payment charges.
* The interest rate on Personal Loans usually starts from 10.99 % and it can go as high as 18 %. While a credit card loan can be a costlier option after the free credit period.
* There are a lot of options for a Personal Loan. You can go for HDFC Bank Personal Loan or ICICI Bank Personal Loan. However, for Credit Card Loan, you are dependent on your card issuer only and there is no choice.
As there is no one size fit all option. The choice between the two would entirely depend on your needs. While credit cards offer instant loan amount but the limit is usually lower, and thus, you can certainly pay for medical bills and tour expenditures instantly using a Credit Card. However, a Personal Loan has its own value, because you can take a large amount of loan at once to bear the large expenses.
For smaller expenses for which you can pay the outstanding amount monthly, Credit Card Loan could be the best option. However, if you want a large amount right away, you must go for a Personal Loan.
Your Credit Card is a ticket to buy now & pay later. You get free credit for up to 50 days. While, for longer duration you may prefer to opt for Personal Loan at an affordable EMI.