Confused Between Personal Loan and Credit Card? Here’s A Detailed Analysis!

Bonnie D. Schmidt

Despite prudent financial planning and constant investing, unforeseen emergencies can always sweep you into financial crisis. To face such situations, usually 2 options come to mind – credit card and personal loan. However, both options have their set of pros and cons that you must be aware of before zeroing on one –

  • Loan amount

Lenders usually offer personal loans that range anywhere between Rs 50,000 and Rs 25 lakh. However, the sanctioned loan amount is based upon your monthly income, credit score, job profile etc. Moreover, lenders also prefer your overall commitments including your fresh personal loan EMI to be under 50-60 percent of your monthly income.

In the case of credit cards, the issuer sets a credit card limit on your credit card based on your repayment track record and monthly income. Using your credit card, you can swipe or avail a loan against it up to the sanctioned limit. An overlimit fee may be charged if you go beyond the sanctioned credit limit. The credit limit is reduced by the spent amount via credit card, or the amount opted for as credit card loan. Your credit card limit increases as and when you repay your credit card debts. Note that few lenders may offer a special kind of loan against credit over your credit card limit, which does not impact your credit card limit.  

  • Loan disbursal

Disbursal of traditional personal loan generally takes 2 to 7 days. However, few lenders may provide an instant online loan for personal usage. Usually, such loans are disbursed on the same day of placing the application. 

In the case of credit cards, access to credit is instant. However, for loan against credit card, the proceed may be processed on the same day of application or may take few days. 

  • Interest rate

Personal loan interest rate ranges anywhere between 10.75 – 24 percent p.a. based on your monthly income, loan amount, employer, and repayment tenure. While funding your expenses through credit card does not involve any cost if the whole bill is repaid on time, carrying outstanding due attracts huge finance charges of up to 42 percent p.a. Converting your whole dues or specific transactions into EMI may cost anywhere between 12% and 25% p.a.

Note that interest rate offered by personal loan outscores loan against credit card marginally for individuals with same credit profiles. Availing a personal loan can cost you processing fees of 0-2.5 percent of the loan amount. While swiping credit cards does not incur any processing fees, availing a loan against credit card or converting your dues into EMIs include a processing fee of up to 3 percent.

Thus, considering the interest rate aspect, personal loan interest rate is lower than a credit card’s finance charges or interest rate incurred on converting credit card dues into EMIs. In case you have a requirement for a loan, opt for a personal loan as this option may cost you lower than loan against credit card. However, ensure to use a personal loan EMI calculator to compute the overall savings and select a suitable lender as per your requirement.

Make a choice

Swipe your credit card to mitigate your monetary shortfalls if the proceeds are very small and extremely urgent. Go for the EMI conversion option in case you cannot repay the whole bill amount by the upcoming due date but can repay within three to six months. However, if you require a substantial loan amount and can wait for up to a week for the disbursal, select the personal loan apply button after in depth comparison amongst lenders. This is because a personal loan carries a lower rate than loan against credit card for the same credit profile. Also, clicking on a personal loan apply online button keeps your credit card limit free for funding your daily spends as well as future emergencies.

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