Many of us face a financial crunch or crisis at times, and borrowing from relatives or friends can be tricky. If we can’t repay the money borrowed promptly, it can get awkward with the relatives. Alternatively, borrowing money from a bank is a better option. For quick money requirements, we have 2 choices: credit card loans and personal loans. There are a few differences between a personal loan and a credit card loan; each has its advantages and disadvantages. Choosing between a personal loan vs. a credit card loan depends on your financial situation and requirements. Personal loans have lower interest rates but are more challenging to get. While credit card loans are easier to get, they have a higher interest rate.
In this article, we will compare credit cards and personal loans to help you decide which is better.
What Is a Credit Card Loan?
Most of us use credit cards for our day-to-day expenses, online purchases, restaurant bill payments, etc. Banks or other financial institutions issue credit cards to individuals based on the individual’s earnings and repayment capacity. Unlike debit cards, while using credit cards, you incur the expenses first and repay the amount to the lender or card issuer at the end of the billing period.
It is up to us how much credit card dues we want to repay as long as the minimum balance due has been repaid for the billing cycle. If we pay only the minimum amount, the remaining balance due will become debt. The cardholder will have to pay late fees and interest on the debt. A credit card loan is one of the quickest ways to avail yourself of an unsecured loan.
When to Apply For a Credit Card Loan?
There is always a risk of overspending when we use credit cards, and the amount unpaid on credit cards incurs penalties and high interest rates. Apply for a credit card loan when:
- There is an immediate need for cash due to some emergency.
- You need cash to meet relatively more minor expenses.
- Availing of a personal loan seems difficult.
What Is a Personal Loan?
A personal loan is also a type of unsecured loan that can be used to meet bigger expenses such as educational expenses, weddings, expanding business, or a medical emergency. Banks or financial institutions check the applicant’s age, income, stability of income, repayment capability, etc., before sanctioning a personal loan. When comparing credit cards and personal loans, personal loans are of larger amounts and mostly taken for much more significant expenses. Since the amount of a personal loan is larger, the repayment period is also longer, and it can be repaid in monthly instalments of a fixed amount.
When To Apply for a Personal Loan?
Personal loans help meet bigger expense needs but also come with higher interest rates, so consider the following well before applying for a personal loan:
- The documentation and verification process for a personal loan will take at least a week, so you should have at least a week to get the money.
- The amount of money required is considerably higher.
- You can meet the eligibility criteria like age, income stability, etc.
Difference Between Credit Card Loan and Personal Loan
The debate between credit card loans vs. personal loans has been going on for a long time. There is no clear winner, as the choice between a credit card loan vs a personal loan depends on the individual’s needs and preferences. The following table shows the difference between a personal loan and a credit card loan to help you decide better.
Credit Card Loan Vs Personal Loan
| FEATURE | CREDIT CARD LOAN | PERSONAL LOAN |
|---|---|---|
| Application Process | The lender already has your personal and financial details (for example, your bank will have all your details), so credit card loans do not require additional documentation or verification. | A few more additional documents will be required for verification to avail of a personal loan. |
| Loan Amount | This loan is generally used to meet the day-to-day expenses. So, the loan amount is smaller. | These loans are used to meet larger expenses, such as buying a car or expanding a business, so the loan amount is higher. |
| Loan Duration | Since credit card loans have smaller amounts, the tenure is shorter. | Personal loans have a longer repayment tenure as the amount to be repaid is higher. |
| Additional Expenses | No additional chargers except for the interest charges. | Lenders charge processing fees and some other expenses apart from interest charges. |
| Eligibility | Credit card loans can be applied by credit card holders only. | Non-customers of the bank can also apply for a personal loan. |
| Payment Of Loan Amount | The amount is directly received in the applicant’s savings or current account. | The loan amount can be received via cash/check or direct transfer to the applicant’s savings/current account. |
| Time Required For Approval | Almost immediate approval, generally within 24 hours of application. | A personal loan can take 3-5 days for approval. |
| Repayment Of Loan Amount | The loan amount is repaid as a part of monthly credit card bill payments. | The loan amount is repaid in monthly instalments over a specific time period. |
| Maximum Loan Amount | The maximum credit card loan amount is determined by the applicant’s credit card limit and the unused portion of it. Usually, it is between Rs. 50,000 and Rs. 2,50,000. | The maximum loan amount is decided by the bank, depending upon the applicant’s income and credit history. It can range between Rs. 50,000 and Rs. 25 lakhs. |
Credit Cards Vs. Personal Loans: Which One Should You Go For?
There is no definite winner when comparing Credit Card Loans to Personal Loans. With credit cards, you can incur the expenses today and pay the bill later. With personal loans, you can get more money to fulfil significant expenses. Between the two, the interest rate is slightly higher on personal loans, but you also get the advantage of a longer repayment tenure. By knowing the difference between a personal loan and a credit card loan, you can make a well-informed financial decision about which loan to opt for that will fulfil your needs and be convenient for you to repay.
