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Credit Card Loan vs Personal Loan

Compare Personal Loan and Credit Card Loan

Last Updated 04th Dec 2021

Credit Card Loan and Personal Loans are both unsecured loans and can be disbursed instantly in less time.

Parameters Credit Card Loan Personal Loan
Approval Pre-Approved Pre-approved for the existing borrower of the bank
Documentation Minimum documentation requirement KYC, Proof of Identity, Bank Statements etc.
When to avail Preferable for a short-term and small loan amount Suitable for long-term and higher loan amount
Rate of Interest The rate of interest on credit cards is comparatively lower than personal loans The rate of interest on a personal loan is higher than the loan against credit cards.
Loan Amount Banks provide Credit Card Loan on the unused credit card Personal loans can be availed for higher loan amounts up to ₹ 75 Lakh based on your eligibility.
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Personal Loan v/s Credit Card Loan

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 have no end usage restrictions and can be availed for diverse personal or business needs such as wedding expenses, home renovation, travel etc.

However, these loans are not the same and are different from each other.

Personal Loan

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 tenure of 60 Months months and a maximum amount of ₹ 75 Lakh. 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 8.70%.

Though personal loans are secured loans yet, certain eligibility factors need to be ensured. The applicant must be aged between 18 years to 65 years. This loan can be applied by salaried people with a minimum salary of ₹ 15,000 in semi-urban and rural areas, and a minimum salary of ₹ 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 credit score is 650 and above for personal loan borrowers.

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 upto the pre-approved credit limit, and later need to pay the credit card bills and interest to the card lender. A credit card is a good option to improve one’s credit score, as timely payments can improve one’s creditworthiness. However, in crisis times, 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 a credit card loan, banks consider the borrower’s payment history in terms of on-time and late payments.

Personal Loan Or Credit Card 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 bank’s previous account holder.
  • 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 8.70%, 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 a small loan amount. On the other hand, personal loans are 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 a credit card, is a subjective choice. Both these financing options have their shares of merits and demerits. Identifying the right credit option is wholly based on one’s financial situation and needs. Also, 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


Which is better- Credit Card Loan or a Personal Loan?

Credit Card Loan and Personal Loan have their shares of merits and demerits. Identifying the right credit option is wholly based on one’s financial situation and needs. For instance, repayment capacity is an essential factor to consider while opting for any of the two. A credit card loan must be preferred for short-term financing needs & similarly a personal loan can be availed for long repayment tenures.

What is better for a credit score, personal loan or credit card?

Both personal and credit card loans can help you improve your credit score if paid timely. However, a personal loan has a longer repayment tenure and can be considered a better choice for building a credit score.

Why is a personal loan better than a credit card loan?

The biggest advantage of a personal loan is that it has a longer repayment tenure upto and can be available for a high loan amount.

Should I take a personal loan to pay off credit card dues?

If you have a good credit score and meet top lenders’ eligibility criteria, you can avail a personal loan at a lower interest rate to pay off your credit card dues. Choosing a long repayment tenure for a personal loan can help you to clear all your dues easily.

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*Terms and conditions apply. Credit at sole discretion of lender, which is subject to credit appraisal, eligibility check, rates, charges and terms. Information displayed is indicative and collected from public sources. Read More
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