Personal Loan on a Credit Card Versus Personal Loan From Banks
August 10, 2023

Personal and Credit Card Loans fall under unsecured loans, yet they differ. Credit Card Loans involve short-term obligations, whereas Personal Loans cater better to those seeking extended repayment periods. Thus, if you need that extra funding, you can use a Credit Card Loan or a Personal Loan. This blog provides valuable insights to help make a decision.

What is a Personal Loan?

More and more people are acquiring Personal Loans to meet their immediate financial needs. One of the most relevant reasons for the popularity of Personal Loans is their status as unsecured loans, eliminating the need for collateral and quick processing time.

Banks and financial institutions extend these loans with eligibility determined by work tenure, repayment capability, income level, professional status, and credit record.

What is a Credit Card Loan?

A Credit Card Loan is a pre-sanctioned loan granted to you based on your credit card utilisation, repayment record, and history. Due to the loan’s pre-approval, disbursement is a matter of minutes. Customers with pre-approved status can secure the loan in just 1 second.

The applicant repays the loan through manageable monthly instalments (EMI) throughout the duration you’ve opted for. You can opt for a tenure spanning up to 36 months. Your credit card statement will include the EMIs, to pay on the due date, along with any other purchases you’ve made. Also, the EMI amount will lead to a reduction in your credit limit.

Personal Loan VS Credit Card Loan

Parameters Credit Card Loan Personal Loan
Eligibility Eligibility is limited to only credit card holders. Customers, and even those who are not customers of the bank, have the option to apply.
Procedure for Borrowing You can either accept a pre-approved offer extended by the bank or proceed by applying for the same. The customer has to submit the necessary documentation while applying to a bank or financial institution.
Disbursement The funds can be directly credited to your savings/current account (if held with the same bank) or disbursed as a cheque. The Bank transfers the loan amount to the customer’s savings/current account as a lump sum through ECS or via the banker’s cheque.
Approval Time In 24 hours Within 3-5 working days
Repayment Monthly credit card statements will include EMIs for the specified duration. In the form of EMIs paid to the bank over a designated period.
Tenure Tenure ranges between 6 to 36 months. For a tenure between 1 and 5 years.
Borrowing Limit Within the limit pre-approved by the provider. The bank will assess this based on income proof.
Interest Rates Comparable to personal loan bank to bank and customer to customer. Applicable from 10.50%, determined by the customer’s income and
credit history.
Documents No extra paperwork is required. You need to provide proof of identity, address, and revenue.

When To Get a Personal Loan?

  • Travel or Holidays

In specific scenarios, time constraints limit your ability to plan your vacation finances adequately. A Personal Loan can be advantageous due to its lower interest rates and adaptable repayment terms.

  • Large Purchases

If you want to make a significant purchase like a new appliance, furniture, or electronics, a personal loan can help you cover the cost without depleting your savings

  • Home Improvement

While renovating your home, you may need more funds to cover the expenses. An individual can obtain a Personal Loan to fulfil these needs while potentially enhancing her property’s resale value.

  • Special Occasions

Life’s milestone events, such as weddings or other celebrations, often have a price tag. When you want to create unforgettable memories without compromising your financial stability, a personal loan can provide the necessary funds.

Pros and Cons of Credit Card Loans

Pros of Personal Loan

  1. Simple and Transparent Eligibility Criteria.
  2. A Personal Loan is suitable for small and large amounts, ranging from Rs.50,000 to Rs. 40 lakhs.
  3. It provides flexibility to repay over up to 7 years.
  4. Easily accessible through numerous financial institutions offering Personal Loans.

Cons of Personal Loan

  1. Personal Loans come with processing fees and additional charges that might contribute to the overall loan cost.
  2. Specific lenders might request an extensive set of documents from you.
  3. Having a good credit score is crucial for loan approval.
  4. Missing EMI payments can lead to heavy penalty charges.
  5. Personal loan Interest rates are higher than secured loans such as home loans.

When To Get a Credit Card Loan?

  • Pay For Medical Bills

A single day of hospitalisation could result in substantial medical expenses running into thousands. A credit card loan can help you settle these bills if you face a cash shortage.

  • Fund Unexpected Financial Needs

If you have to pay big utility bills or address immediate expenses, a credit card loan can assist in managing your short-term financial needs during emergencies.

  • When Urgently in Need of a Small Sum

Imagine you require Rs.15,000 urgently. A credit card loan could be helpful in this scenario. The advantage is that the loan amount is small, making it more straightforward to repay quickly and avoiding high-interest costs.

Pros and Cons of Credit Card Loans

Pros of Credit Card Loan

  1. Applying for a credit card loan using your credit card is hassle-free and doesn’t require any additional paperwork.
  2. A good credit score can help you qualify for a competitive interest rate on your loan.
  3. Using credit card loans responsibly can create a good credit history that will be helpful for any future borrowing requirements.

Cons of Credit Card Loans

  1. To be eligible for a credit card loan, you must possess a credit card.
  2. Loan applications against credit cards are limited to eligible credit cardholders approved by the issuer.

Choosing The Right Option For You

When deciding between a Credit Card Loan and a Personal Loan from a bank, consider the purpose of the loan, the amount needed, and your repayment capabilities. A credit card loan might be suitable if you require quick access to a smaller amount and can repay it promptly. However, if you need a more significant sum and prefer lower interest rates with flexible repayment terms, a personal loan from a bank is likely the better choice.

Consolidation and Repayment

While both Credit Cards and Personal Loans are unsecured credit tools readily available for mandatory and lifestyle needs, the customer must remember that all credit comes at a cost.

To maintain a Personal Loan, keep enough balance in the account to clear the monthly instalment. An EMI bounce shall be charged interest daily and will always reflect in your credit history.

Whereas a Card Loan is billed as per regular spending. Always remember to avoid over-usage as the addition of the Loan instalment can attract overspending charges.

Additionally, if the bill is not cleared on the due date, the pending amount will incur interest of 36% per annum. This applies to the Loan installement too! With an inflated charge, non-payment of dues can lead to a debt crisis.

If your Credit card debt is not manageable, you can save on the interest by a

transfer your unpaid dues to a Personal Loan by a Balance Transfer to an alternate Bank. The Bank will clear your outstanding Credit card bill, which can be repaid with a reasonable interest.

Axis Finance, an integral part of Axis Bank, enables the transfer of Credit card dues to a Personal Loan.

Conclusion

Whether you opt for a Credit Card Loan or a Personal Loan from a bank, it’s essential to borrow responsibly and evaluate your financial situation carefully. Remember that borrowing money incurs costs in the form of interest, and timely repayment is critical to maintaining a healthy credit score. Understanding the differences between these borrowing options will empower you to make a well-informed decision that aligns with your financial goals and needs.


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