Loan on Credit Card: Its Features, Eligibility and How to Apply?
What is a Loan on Credit Card?
A loan on credit card is a type of pre-approved personal loan that can be acquired when credit card users are in urgent need of cash. If an individual owns a credit card that offers such card-linked loans, he/she can easily apply for one without having to submit any additional documents. The loan amount can be used for any financial requirement without any restrictions whatsoever.
The loan amount extended by the concerned financial institution to the credit card holder is typically through a direct bank transfer. Depending on the nature of this pre-approved financing facility, this instant loan could either be linked to the card’s credit limit or a separate loan. However, these loans usually have higher interest rates than other loan options like personal loans or gold loans.
Features and Benefits of a Loan on Credit Card
Following are some of the essential features of a loan against a credit card:
- Eligible users can avail of instant loan on credit cards whenever required
- These loans are usually pre-approved in nature, meaning they could be availed of with minimal to zero documentation
- Credit card-linked loans are usually offered to select credit card users depending on the card variant, repayment history, credit score, income and credit limit of the user
- These loans require no collateral and can be used for any financial requirement
- Credit card loans could be linked to the card’s credit limit and the EMIs are typically clubbed with the monthly card dues
- These loans typically have shorter tenures up to 24 months. However, there are banks that could offer longer tenures up to 5 years
- The interest rates are usually higher than personal loans and other secured loans, depending on the card variant
- The maximum loan option could be capped even if the credit limit is higher
- Many credit card issuers might offer a discount on the loan processing charges
Also Read
Top Banks Offering Loan on Credit Cards
1. HDFC Bank
HDFC Bank offers two types of credit card loans to its credit card customers – Insta Loans and Jumbo Loans. Insta Loans are linked to the card’s credit limit and the maximum loan amount is usually capped at 80% of the available credit limit balance. Jumbo Loans, on the other hand, are not linked to the card’s credit limit and could be even more than the limit. However, both the loans come with a tenure range of 12 months to 60 months, with current interest rates starting at 15% p.a. Eligible card holders can get funds instantly through any of these loan facilities without any additional paperwork.
2. ICICI Bank
ICICI Bank offers Personal Loan on Credit Card to select ICICI Bank credit card customers based on their spends, transaction pattern and repayment history. The maximum loan amount could be ₹20 lakh for tenures up to 60 months and interest rates between 14.99% and 15.99%. The loan comes with minimal documentation requirements and can be availed instantly online.
3. Standard Chartered Bank
Standard Chartered Bank offers Loan on Credit Card up to ₹10 lakh to its pre-approved credit card customers. The loans can be availed quickly starting from 11.88% p.a. with tenures from 12 months to 60 months.
Eligibility for Availing a Loan on Credit Card
Since such a credit option is unsecured and does not require any collateral, therefore it is offered to selected card holders. However, to be eligible to avail of a loan on credit cards, individuals need to fulfil the following conditions:
- To avail of a loan on credit cards, it is essential to possess a credit card account that offers such a loan facility.
- Applicants need to have a good credit score and repayment history.
- Individuals with stable and high income can apply for such loans.
- Both new and existing credit card customers can apply for such a loan. However, the credit card issuer would give such a loan only to select customers based on their own eligibility parameters.
- Users must have sufficient credit limit balance to accommodate a loan if its linked to the card credit limit.
Documents Required to Avail for a Loan on Credit Card
Pre-approved credit card-linked loans usually do not require any additional paperwork. However, in some cases, a few additional documents might be required depending on the card issuer’s terms and conditions. These could include:
- KYC documents
- Address proof
- Office ID card and salary slip for last 3 months
- Attested ITR documents
How to Apply for a Loan on a Credit Card?
Loans on credit cards are usually pre-approved in nature. Hence, in order to get such a loan, here are the steps to follow:
- Step 1: Check if you’re eligible for a loan from your credit card issuer
- Step 2: If so, visit the official portal of your credit card issuing bank via netbanking or mobile application and go to the ‘credit cards’ section
- Step 3: Once you’ve found the loan offer, select the loan amount and the tenure after reading the applicable terms and conditions
- Step 4: Check for any additional documentation requirement. If so, upload those documents or reach out to your bank’s customer service.
- Step 5: Click Apply after entering all the required details
Who Should Borrow a Loan Against a Credit Card?
If you’re in urgent need of cash, you might want to consider going for a loan against a credit card if you’re eligible for one. These could be availed of quickly with minimal documentation requirements. While doing so, ensure you minimise your loan amount as much as possible because of the high interest rates involved. For bigger requirements, it might be a better idea to go for a personal loan or a gold loan for relatively lower rates.
That said, if your credit score is low, you might not be eligible for a credit card, and thus, a loan against credit card.
Final Word
Loan on credit cards could be a good fit for urgent short-term financial needs because they could be availed of quickly often involving zero paperwork. However, keep in mind that these are expensive loans often linked to the card’s credit limit. So, read the terms and conditions carefully before taking such a loan, and ensure you repay it in full in time to avoid accumulation of debt due to interest penalties and a damaged credit score. Lastly, consider your other credit card spends before choosing a loan linked to the card credit limit as that would be locked to the extent of the loan balance leaving you with lower funds to meet other card spends.
FAQs
Yes, there is definitely a difference between interest levied on cards and loans against credit cards. Usually, financial institutions levy a higher interest rate on cash withdrawal on credit cards than on loans against credit cards.
Credit limit denotes the maximum amount that one can spend by using their card. the concerned financial institution determines the credit limit of the cardholder by considering details such as annual income, repayment capacity, credit history etc. Besides, the concerned lender revises the credit limit based on previous year’s record based on spending capacity and repayment.
There are certain factors that affect the eligibility for such credit options:
– Poor credit score and repayment history
– Insufficient financial standing and lower income level
– Providing inauthentic documents
– Existing liabilities
– Age and work experience
As per experts, availing a loan on credit cards is effective for short-term debt. Moreover, since it is a kind of pre-approved loan extended based on credit card usage, credit score and history, it is a prompt and convenient borrowing method. Moreover, it can be considered a viable option to meet financial emergencies.
Individuals can avoid paying interest on credit card purchases by paying the overall balance in each billing cycle. Therefore, one needs to restrict their spending capacity every month to continue to enjoy the benefits of the card without paying substantial interest charges.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
