All of us have often come to crossroads when it comes to funding our needs beyond our available liquidity. A house, a home-makeover, that new car or simply a new laptop…

One can opt to apply for a personal loan – adding to the personal loan amount in one’s account. A personal loan is a cheaper option of accessing extra funds. However, that takes effort and time. Then there is the ubiquitous credit card that comes loaded with a debt trap.

Even though both are types of credit given by financial institutions, they are way different in their entity. The way they impact one’s financial health and long-term credit score needs to be weighed properly and see which is better to use: Credit card or Personal loan.

Let us take a look at the pros and cons of credit cards against the personal loan right here:

Application Process for Personal Loan & Personal Loan

Both kinds of funds will be approved after a minimum amount of paperwork, but credit card approvals will be easier and faster. Even though an online personal loan application form can be filled, one would have to submit a salary slip, Form 16, and bank statements of the last three months.

However, there are instant online approval platforms available that help simplifies the pre-approval process. There is no paperwork involved. You simply download the app, or go online as required, fill in your details and voila! A bank agent will be at your place for your eSignature, and your desired amount gets approved.

Additional Reading: Checklist For A Personal Loan

Amount to be Withdrawn

Credit cards generally come with a fixed borrowing limit. Whereas, a personal loan is fixed by a calculation based on your monthly income. When you access the funds, the amount is credited as a lump sum thus giving you the freedom to plan your next move.

Some online apps empower you with the best of both. Even though you have got a personal loan approved, they allow you to enjoy partial withdrawals. It gives you the freedom to use a part of the amount approved with interest being paid at the amount actually spent.

Interest Rate to be Paid

A decisive factor is how much to pay to clear the credit. The interest rate on the personal loan comes between 12-20% annually. Though on the credit card it appears as a mere 1.5% – 2.99%, in reality, it works out to be 18 – 36% annually.

With a credit card, one needs to pay off the entire amount to avoid accruing interest which can easily go out of control. Also, understand that the credit card funds are offered at flat interest rates, whereas the personal loan is offered at reducing balance rates.

As a result, a personal loan can be more pocket-friendly as you keep paying off the interest and a portion of the principal amount every month.

Your Decision

Credit cards and personal loan, each come with their own perspective. They differ in the type of interest rate charged, the amount approved and repayment mode offered. Withdrawing and paying off the credit card funds requires a great level of dedication but it is easy to access. There is no fixed date of repayment so you need great self-discipline to use it wisely.

When it comes to repaying a personal loan, the monthly payment scheme could be a boon. It is designed as a disciplined repayment module. A personal loan will keep you updated about your repayment schedule. A credit card often leaves you clueless about overspending until the borrowing limit is reached.

We all know it is much easier and convenient to swipe the credit card whenever required. But do remember, to fund big investments, a personal loan is sometimes a better option. Always ponder the pros and cons according to your needs and requirements. Both the credit card and personal loan are easily available to the modern consumer. One needs to take a long hard look to choose the one that suits your needs the best.