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Credit Card Vs Loan: Which One To Go For

By Author: Neha Sharma
Total Articles: 214

What do you do when there is a cash crunch? Do you reach out for your credit card? Or do you apply for a personal loan? Both credit card and a personal loan lend you money. Which option should you go for?

To decide which is ideal for you, you need to know how the two work, and how they differ from each other.

Credit card loan
A credit card is issued by banks that allow you to carry out financial transactions. You can use it for withdrawing money and for money transfer as well.

Many banks in India grant you loans against your credit card. If you have a credit card and an excellent credit score, you can apply for a loan. No other documentation is necessary. However, your bank may need proof of eligibility. Because of the absence of red tape, it is a very easy loan to procure.

A person can opt for a bank loan against a credit card when your cash need exceeds your credit card’s withdrawal limit and you need money because of an emergency. However, a credit card loan predetermines the amount that you will be granted a loan. For example, if you need INR 2 Lakh but your credit card loan limit is INR 1.5 Lakh, your loan application will be rejected. The loan amount is transferred directly to your bank account or you get it in the form of a demand draft.
Loan against a credit card is pre-approved. That means you can get a loan anytime you need and there is no fear of your loan request being denied. Moreover, credit card loans are unsecured, i.e. you do not have to secure the loan. Until you pay back the loan in EMIs, you will not be able to use your credit card.

Personal Loan
This too is an unsecured loan. You can procure a personal loan for any purpose, be it for your medical emergency or home renovation. Anyone can apply for a personal loan. It is a comparatively more complicated process, as you have to provide the bank with documents attesting to your identity, your income, residence etc. and these loans take longer to process.

A personal bank loan charges a high rate of interest, sometimes as high as 30%. If you have not incurred many debts or if you have a good credit score, then this will push your interest rate down. The loan amount could be anything from a few thousand rupees to lakhs. There is no cap on how much you can borrow. This feature is beneficial if need a lump sum, maybe for a surgery. You have to pay the loan back in EMIs and the loan repayment tenure ranges from 1-5 years.

Both a personal loan and a credit card loan have their own specific advantages. Now you need to assess your needs and decide if you want to apply for personal loan or a credit card loan.

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