Loans: Personal loan vs credit card loan: which one to choose?

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Representative image | Photo credit: BCCL

New Delhi: A loan can be a great tool for closing a financial gap and meeting financial goals. Loan products can be divided into two types: secured loans and unsecured loans. Under unsecured loans, which as the name suggests do not involve any collateral, there are various loan instruments offered by banks and financial institutions – and personal loans are one of the most popular ones. ‘between them. However, there is another unsecured loan instrument that is rapidly gaining popularity among borrowers: credit card loans.

So, if you are looking for an unsecured loan, which one to choose, a personal loan or a credit card loan? Well, to help you make an informed choice, let’s take a look at the different aspects of both products and find out which one is best suited to your borrowing needs.

Loan eligibility

Do you have a credit card? If so, depending on the offer of the card provider, you can get a loan against the card. Needless to say, if you don’t have a credit card or your variant card doesn’t have a loan extension, you can’t get that loan. In contrast, personal loans are available to anyone with or without a pre-approved personal loan offer. Lenders usually check the creditworthiness and income stability of the loan seeker before taking a call about whether or not to extend a loan and, if they do, under what repayment terms (for example, what will be the applicable interest rate, the amount and maximum term of the loan, etc.). If you meet the eligibility standards of the lender, you will easily get the personal loan.

Loan amount requirement

Banks usually provide a pre-approved loan offer to their eligible credit card users taking into account, among other things, their creditworthiness, their credit card limit, and their relationship with the bank. Therefore, a borrower cannot apply for a loan amount tied to a card if it exceeds what their card provider has to offer.

However, the lender determines the maximum amount when extending a personal loan based on the borrowing capacity of the loan seeker. If the applicant’s income is high and has a proven track record in terms of good repayment history, the borrower will be eligible for a high personal loan amount.

As such, if you are looking to organize a large amount, a personal loan is probably a better option to meet your needs.

Repayment period

Credit card loans typically have a short repayment term of around 12 to 48 months, while personal loans often have a longer repayment term of up to 60 months.

So, if you are looking for a long repayment term, a personal loan might be the best choice. That being said, even pre-approved loans linked to a credit card can have quite a long repayment term depending on the offer.

Interest rate and cost of borrowing

Interest on credit card loans can vary from lender to lender; however, an approximate range is about 12% to 24% pa. On the other hand, the interest rate on a personal loan depends on the credit rating, the amount of the loan, the length of the loan and the repayment capacity of the borrower. Globally, the interest rate on personal loans hovers between 10.5% and 18% per year.

Check out the table of the latest interest rates on personal loans and credit card loans offered by three banks.

Personal loan

Approval deadline

A personal loan usually has an approval period of a few days, whereas a loan against a credit card is pre-approved, so the borrower just needs to give consent and the amount is usually credited to his bank account within 24 hours. hours.

As such, if you are in urgent need of cash or are looking for super-fast processing, a card linked loan can be a good option, provided the loan amount is not high and you agree to pay a slightly higher interest rate overall. probability.

Final thoughts

You must have understood by now that personal loans and loans against credit cards have their own advantages and disadvantages. You will be well advised to carefully evaluate the characteristics of these two financing instruments, compare the offers of different lenders on a neutral market platform once you have chosen an instrument (especially if you wish to go for a personal loan) and to select a product that best meets your needs.

Adhil Shetty is a guest contributor. The opinions expressed are personal.


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