Personal loan and credit card loans, both are types of unsecured loans. But they are not the same. Credit cards are short-term debts, whereas personal loans are more suitable for individuals who need a longer repayment tenure to pay back the debt. So, in case you are planning to buy an item and are wondering whether you should take a loan on your credit card or personal loan, this blog should come in handy.
Read on to know and compare personal loans vs credit cards in detail.
Let’s differentiate credit card loans from personal loans based on certain parameters:
|Parameters||Credit Card Loan||Personal Loan|
|Borrowing limit||As per the pre-approved limit||To be decided by the bank depending upon the eligibility criteria of the applicant|
|Disbursement||Credited directly to the bank account of the cardholder||Sanctioned amount is transferred to the borrower’s bank account|
|Documents needed||No documents needed||Income, identity and address proof required.|
|Interest rate||Usually on the higher side||Usually on the lower side|
|Approval time||Within 24 hours||3 to 5 business days (varies from lender to lender)|
|Borrowing type||Accepting pre-approved offer||Applying to a bank/ financial institution|
You can avail a personal loan without collateral or security as it is an unsecured loan. Here are some situations when you should get a personal loan:
There may be situations where you do not have much time left to plan finances for some big life events. In such instances, taking a personal loan will prove to be beneficial owing to the lower rate of interest and flexible repayment tenure.
The interest rate of a personal loan is not very low but can be lower than that of a credit card. If you have multiple credit card debts, you can avail of a personal loan to pay those off. Thereafter, you will have one loan to pay off at a lower rate of interest. This will also improve your credit score.
When remodeling your home, you might not have sufficient funds to cover the expenses. You can avail a personal loan to fulfill such requirements. This will also increase the resale value of your property.
Have a look at the following benefits of a personal loan:
Before you avail a personal loan, consider taking a look at these cons:
In case you have a credit card and are in need of urgent funds, you can check with your lender and get a loan against your credit card.
A day of hospitalisation could cost you thousands in medical bills. If you’re short on cash, you can take a loan on your credit card and clear the bills.
Whether you need to pay utility bills in lump sum or have some immediate expenses to meet, a credit card loan could help you to meet short-term emergency financial requirements.
Let’s say you need Rs.15,000 urgently. Getting a credit card loan could come in handy in such a situation. The reason – loan amount is low which makes it easier to pay off within a short span of time without incurring high interest charges.
In case you need urgent funds and your personal loan application is rejected, you can go for a loan against your credit card. However, you would need a credit card to apply for such loans.
Credit cards loans offer a handful of advantages:
Along with the benefits, you should also be aware of the drawbacks a credit card loan brings:
Credit cards and personal loans both have similarities in nature but can be differentiated on the basis of key factors. The following table will help you assess the ideal loan type for you:
|Credit Card||Personal Loan|
|Revolving line of credit||Non-revolving in nature|
|Variable monthly instalments||Fixed monthly payments|
|Higher interest rate||Lower interest rate|
|Used for smaller expenses generally such as shopping||Availed for large expenses such as financing wedding, education, etc|
|Can help build a good credit score||Can help to consolidate credit card debt|
|You need to have a credit card to apply||Anyone can apply for a personal loan|
Personal loans could be helpful in case of last-hour emergencies, where the need for cash is immediate. For example, hospital expenses, immediate cash requirements for your business, etc. While a credit card loan is helpful to meet smaller expenses.
Compare the advantages and drawbacks of personal loans and credit card loans and apply as per your preference. Point to note: ensure to make your repayments on time to avoid hefty penalty fees.
Ans: Yes, you can avail a loan against your credit card. With a credit card, there will be no need for documentation, unlike other loans.
Ans: Personal loans affect the credit score but it depends on how you repay the loan amount. As long as you pay the EMIs on time, your credit score will not be negatively impacted.
Ans: The key difference between a personal loan and a credit card is that the former is a lump sum amount approved at a comparatively lower rate of interest, which is repaid over a fixed tenure. Credit cards offer revolving credit as long as the account is maintained in good condition and the debts are paid in a timely manner.
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