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A financial crisis can occur with anybody. But to not let that affect somebody’s dreams and needs, people tend to look out for financial aids in the form of loans and credits. Credit Card loans and Personal loans are the most popular forms of financial aid that can be spent by anybody for any personal reason without informing the lender of the same. However, these loans are not the same and are different from each other.
Credit Card Loan
Loans on credit cards are funds borrowed through a credit card. A credit card is a credit borrowing facility that allows people to spend money on their purchases through a payment card. The card users can spend as much as they want up to the pre-approved credit limit, and later need to pay the credit card bills, along with interest to the card lender. A credit card is a good option to improve one’s cibil score, as timely payments can improve one’s creditworthiness. However, in times of crisis, the key benefit that a credit card can offer is a Credit Card Loan.
A Credit Card Loan comes to help when you are in urgent need of the cash. Credit Card customers can take a loan on the credit limit set on their credit card. This means that customers get a loan amount in terms of an extended credit limit or can use the unused credit as a loan amount. After the approval of the loan, the extended limit is credited to the card. However, just like a personal loan, banks charge interest on the credit card loan as well, which can be paid through EMIs. These loans are pre-approved, because, in case of a credit card loan, the applicant is an existing customer. To apply for credit card loan, Banks do consider the borrower’s payment history in terms of on-time and late payments.
Personal Loans are offered by both Banks and NBFCs. They are unsecured in nature. This loan is an immediate source of funding, in the time of financial crisis. Borrowers can apply for a personal loan both offline and online for a maximum tenor of 5 years and for a maximum amount of Rs 75 lakhs. This loan can be opted for any personal use, without any compulsion of informing the lender about it. Personal loans are easy-to-go finance options, due to several benefits like minimum documentation, and easy processing. However, the rate of interest on these loans is comparatively high because there is no collateral involved. The interest rates start from 10.50%.
Though personal loans are secured loans yet certain eligibility factors need to be ensured. The applicant must be aged between 21 years to 65 years. This loan can be applied by salaried people with a minimum salary of Rs 15,000 in semi-urban and rural areas, and a minimum salary of Rs 20,000 in metro cities. Also, applicants need to ensure the bank of the minimum work experience of at least one year in the same firm. Another important factor that ensures personal loan eligibility is the credit score. A good credit score indicates the borrower’s creditworthiness and loan repayment capability. The desirable cibil score is 650 and above for personal loan borrowers.
Credit Card Loan or Personal Loan- which one to choose?
Credit Card loans and a personal loan are easy financing options. Both are unsecured in nature and can be opted without submitting any collateral. However, there are some major points of differences between them both.
- Approval: While a Credit Card Loan is pre-approved, a personal loan is pre-approved only when the borrower is a previous account holder of the bank.
- Documentation: Though the documentation is minimal in case of personal loans, yet that on a credit card loan is even less. Thus attaining a credit card loan is faster than obtaining a personal loan.
- Interest rate: The interest charged on a personal loan is comparatively higher. Interest on personal loan starts at 10.50%, while for credit card loan interest rates begin at a lower rate, based on the credit value and the lender’s terms of service.
- Loan tenure and Loan amount: A credit card loan is more convenient for short term loans and for a small loan amount. Personal loans, on the other hand, is a good option to fund bigger funds for larger tenure.
On a concluding note, choosing a loan option, out of personal loan or loan on credit card, is a subjective choice. Both these financing options have their own shares of merits and demerits. Identifying the right credit option is completely based on one’s financial situation and needs. In addition, repayment capacity is an important factor to consider while opting for any of the two. If managed well, both personal loans and credit card loans can be useful and affordable, and if not handled wisely, any credit aid can soon become a liability. Thus, being financially sound is the need of the hour to choose the right loan product.