Credit Card Loan vs Personal Loan: Which One is Better?

by Maumita Mitra
14 June 20247 min read
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Credit Card Loan vs Personal Loan: Which One is Better?Credit Card Loan vs Personal Loan: Which One is Better?
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In times of cash crunch or urgent fund requirements, borrowers often turn to credit cards or personal loans. Both Credit cards and personal loans are unsecured loans provided for a specific period of time. Now, if you are confused about which one to opt for, how to apply for one and what is the difference between the two, this article is your simple guide to understand personal loan vs credit card.

What is a Personal Loan?

A personal loan is an unsecured credit, this means that there is no collateral or security required to avail the loan. Bank assesses your creditworthiness based on your income documents, credit history, etc. The loan is disbursed on agreed terms like rate of interest, tenure, repayment terms, other fees, etc. Personal loans usually bear fixed interest rates.

Personal loans can be taken for any personal need e.g. white goods purchase, travel, fee payment, home renovation, debt transfer, etc. Personal loans bear high interest compared to secured loans like home loans etc due to zero security required.

Benefits of Taking a Personal Loan:

Easy Documentation: You need to furnish basic KYC and income documents to avail a personal loan. There is no need to collect a long list of documents required for secured loans. 

Fast Processing: Most Banks or NBFCs process personal loans within a week. Nowadays many lenders disburse loans within a few hours a day or two with the use of technology. 

Lower Interest Rates: Compared to a credit card loan, personal loan interest rates are lower and easy on your pocket. The interest rates are fixed so there is no risk of an increase in interest liability. 

Flexible Terms: Personal Loans can be availed for as low as 3 months to 5-7 years. A longer tenure means lower EMIs and vice versa. You can opt for tenure as per your comfort. You can also close the loan before its term subject to the lender’s terms like penalty or fees. A personal loan can be taken in joint names, it helps in loan eligibility with the incomes of both borrowers clubbed for credit approval. 

What is a Credit Card Loan?

A credit card comes with a credit limit up to which you can make purchases every month. The utilised amount needs to be repaid within a defined time or you may attract penalty and interest. Apart from credit lines, you can also avail a credit card loan. 

A credit card loan is simply a type of instant personal loan provided by your credit card company based on your credit limit, credit history, and income details. It is a pre-approved unsecured loan, which means you need not submit any documents. The loan is offered without collateral and credited to your bank account. It is ideal when you have urgent short-term cash requirements where you cannot wait to apply for a personal loan, or the cash requirement is small or you are not eligible for a personal loan. 

Advantages of Credit Card Loan:

Convenience: A credit card loan is instantly approved and credited, the process is quick and hassle-free. 

Flexible Repayment: You can pay loan EMIs through your credit card every month without the hassle of separate payments from a bank account. 

Unsecured and Pre-Approved: A credit card loan does not require any guarantee or financial documents. The loan is pre-approved based on your credit card payment history and credit score

Revolving Credit: Some banks allow for balance transfers from one card to another to take advantage of favourable terms, better interest rates or longer credit. Credit cards are pre-approved by banks. Since the bank Also, remember that obtaining a credit card loan is not the same as cash withdrawal on a credit card.

Key Differences: Credit Card Loan Vs Personal Loan

Let us look at the main differences between a personal loan and a credit card loan so that you can determine which one will serve the purpose when you need urgent funds.

Aspects
Personal Loan
Credit Card Loan
Purpose
A personal loan can be used for requirements, such as weddings, home renovations, medical expenses, kids’ schooling, etc.
A credit card loan is suitable for availing instant cash for smaller purchases.
Eligibility
Anyone can avail of a personal loan as long as KYC and credit assessment are done. 
Only credit card holders can avail of a loan on a credit card.
Maximum loan amount
The loan amount for a personal loan can range from Rs 50,000 to Rs 30 lakhs depending on eligibility. It is suitable for bigger expenses like weddings, higher education, home renovation, business, etc.
Credit cards are meant to manage everyday and personal expenses. A credit card loan amount depends on the credit limit and the quantum is smaller than that of a personal loan.
Borrowing Process
By applying to a bank or financial institution with the necessary documents.
Applying for a credit card in-person at the bank or online.
Repayment
A personal loan is paid in fixed monthly installments or EMIs from the borrower’s bank account every month.
A credit card is repaid at the end of every month.  
Tenure
Typically, personal loan tenure is longer, between one and five years.
A Credit card offers zero interest for up to 45 days. A credit card loan tenure for credit card loans is usually shorter as the loan amount is also smaller than personal loans.
Borrowing limit
The bank determines this based on creditworthiness, income, and other variables.
The monthly credit limit has been predetermined. 
Interest rates
Competitive in comparison to credit card loans  
Since credit card loans are instant and disbursed without much paperwork, the interest rate can be higher than personal loans.

In the case that payments are made partially or after the due date, slightly more than personal loans.

Credit Card Loan vs Personal Loan – Which is Better?

There is no one-size-fits-all for a loan for immediate cash requirements. A credit card offers the convenience of available credit without the hassle of approaching a bank for a loan. It is suitable for smaller loans needed urgently. A personal loan offers the benefit of longer tenure, higher loan amounts, and better rates depending on the lender’s terms. 

Conclusion

Whether it is a personal loan or a credit card loan, you need to be mindful when taking on debt. A personal loan can be a viable option to cushion you when you need funds. A credit card loan serves the same purpose at different terms. Compare terms like interest rates, foreclosure charges, processing fees, penalties, loan tenure, etc before you decide on one. Consider your financial goals, monthly expenses, and added interest burden before you avail of any loan. Rupeezy Invest helps you invest in mutual funds of various types after analysing both the risks and returns to select a mutual fund that is good for you. Happy Investing!

FAQs

1. Can personal loans have a significant impact on your credit scores?

A personal loan can improve your credit score if you make timely payments and do not skip any EMIs. Any loan repaid consistently and on time will help you build a good credit history and credit score.

2. I just need a small sum of money for my vacation. Which loan should I opt for? 

When it comes down to tiny expenses, credit card loans are your go-to solution. Since you can easily take up the required loans up to the agreed-upon credit limit, repay them, and then take out further loans later, credit cards help facilitate a smoother transaction for small purchases. 

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