Personal loans and credit cards are two great options to borrow funds for all kinds of financial requirements. With a personal loan, you can finance a big purchase, medical emergency, or holiday expenses, consolidate your debts, and wedding expenses. There are no restrictions on the end usage of the loan; this makes it an ideal option for borrowers looking for quick funds, which makes it attractive for many. Credit card loan is a pre-approved loan in which the loan funds are offered up to the maximum credit limit on the card. Credit cards can be used and are accepted almost anywhere as a lot of stores, hotels, shopping marts accept electronic payments. Below is a comparison of both the lending options that will help you understand which one to opt for.
Loan Eligibility Criteria
With credit card loans, you can easily avail a loan against the withdrawal limit set on the card. Credit card loans are one of the quickest ways to get funds, not all customers are eligible for this loan. The key is to make regular repayments towards the card to release the blocked credit card limit. For a personal loan, the applicant has to fulfil the basic loan criteria set by the lender. The banks and lending institutions run a check on the borrower’s credit standing, to check with his/her financial capability to repay the loan. The lender also checks with the borrower’s professional details, along with credit score and credit history. All these factors help determine the creditworthiness and financial capability of an individual applying for a loan.
Documentation and Disbursal Process
The documentation process for a personal loan may slightly vary from one lender to another. In case of a personal loan, you have to provide documents for identity proof, bank account statement of the last 6 months, ITR (Income Tax Returns) of the previous three years, along with PAN, and proof of address, you also have to mention whether you are salaried or self-employed. The loan disbursal process takes longer in the case of a personal loan due to the documentation and due process. Credit card loan, on the other hand, does not require any documentation, since the individual applying is already an existing customer and have an account with the respective credit card company. The loan amount disbursal for a credit card could be immediate if the borrower holds a savings account with the same bank, which is convenient in case of an urgent fund requirement.
Loan Amount
Credit card loans are the best option if you do not require a large number of funds, the loan funds will depend on your credit card limit. However, when applying for a credit card loan you need to make sure the loan requirement mentioned in the application is within the set limits of the credit card. With a personal loan, you can avail a loan amount ranging from a few thousand rupees or 2 lakh personal loan. The lenders offer loan amounts, based on the borrower’s eligibility and repayment capability. Getting an instant personal loan is an ideal way to get funds in case of emergency fund requirements. Many banks and lending institutions also have a personal loan EMI calculator that helps in getting an estimate of the loan amount that is to be paid towards the EMIs.
The Interest Rate on Loan
The rate of interest charged on personal loans ranges between 13 and 22 per cent. The interest rate on a personal loan is based on factors like the borrower’s credit history. An individual with good credit and history of timely loan repayments have higher chances of getting low-interest rates on loan. Credit card loans are offered at interest rates of 10 per cent and 18 per cent. However, for credit card loans the borrower can negotiate for a lower interest rate on loans since they are already a customer with the credit card company and have proved the company has a good repayment track record.
Loan Repayment Tenure
The loan repayment tenure for credit card loans is shorter and ranges between 6 to 36 months. Such short tenure is ideal for making a small purchase as the amount for repayment will be less and easier to repay. For a flexible repayment tenure on loan, you can opt for a personal loan, as their repayment period ranges from anywhere between 1 and 5 years, which gives the applicant sufficient time to repay his debt.
Both personal loans and credit cards loans are structured with a wide variety of terms and conditions set by the lender. Banks and lending institutions charge lower interest rates on loans as compared to credit cards but the loan must be repaid over the set repayment period. On the other hand, credit cards provide ongoing access to funds and you only have to pay interest on outstanding balances. You can also apply for a loan using a personal loan app.
