Your Hub for Creativity and Insights Inspire Engage flourish
While you may know what is a credit card loan it is also essential to understand how it differs from a personal loan. You can get instant funds to meet your planned or unplanned financial needs using either option. You also have the liberty to pay later, in instalments or lump sum, depending on the option you choose.
However, choosing between these great options in practical situations may be confusing. That’s why it is crucial to know their differences to make an informed decision. Here are the key points to know when choosing between them.
Type of Financing
Usually, with credit cards, you get a revolving type of credit, which means you can repay and replenish your limit. This way, with timely repayment, you do not run out of credit. If you opt for a credit card loan, your credit limit gets restored with every EMI.
With a personal loan, you get a lump sum for every application. Based on your eligibility and the lender’s policy, you get a fixed amount, which you must repay with a fixed monthly instalment. This repayment does not renew your loan; once you have paid it back, your account is closed.
Application Process
Since both are unsecured financing options, financial institutions must run a credit check before approving. Issuers check your credit repayment and default history before approving. Credit card loans involve nominal paperwork, as your lender already has all your documents and credit profile available for credit.
On the other hand, the documentation process for a loan may be more extensive. However, applying with an existing bank can help you save time and get fast approval on your credit card.
Emergency Financing
Between the two, credit cards are a better option to get access to urgent funds for emergencies. This is because you already know the maximum amount of funds you can avail, but your personal loan avail of depends on many factors.
Additionally, with personal loans, there is always a chance of getting rejected, making sending another application difficult. However, if you need a sum larger than your credit limit and have a good score, opt for a personal loan.
Repayment Structure
Repaying for credit card loans and personal loans is similar. The lender or issuer, creates a structured repayment schedule. According to this, you have to pay a fixed amount every month for a decided length of tenure.
This instalment amount includes your principal repayment as well as interest. If you have funds available you can close both loans before the tenure to save on paying high interest.
Interest Rates
You can expect a higher rate with credit cards than with a personal loan. In some cases, the issuer will only charge you interest for the amount of loan you have utilised, which will help you save money on interest. Most issuers already have a fixed interest rate mentioned, which can help you make an informed decision before applying.
On the other hand, your personal loan interest rate depends on your creditworthiness, which includes your current debt obligation, income, loan amount, and chosen tenure. The lenders extend an interest rate offer and a total payable amount by comparing all these factors.
Fees and Charges
Apart from the interest rate, you have to pay nominal fees or charges when getting a credit card loan. If you miss an EMI, it’s added to the next month’s billing cycle, increasing your billing amount. With a personal loan, multiple charges such as processing charges, late payment charges, cheque bounce charges, and foreclosure charges, are applicable, depending on the lender. These are generally higher than those applicable for credit card loans.
Eligibility Criteria
You must be an existing credit card holder to apply for a loan. Anyone, be it an existing or non-existing customer, can apply for a personal loan.
Maximum Amount
With a credit card loan, you can use your available credit limit as a loan. For example, if you have used 10% credit card limit, you can get the remaining 90% as a loan. However, it is at the discretion of the issuer.
The loan amount for a personal loan depends on your credit profile and the maximum loan amount the lender offers.
Keeping these points in mind is crucial when you apply for a new credit card or a loan. Understand that a loan may be ideal when you need a substantial amount for a large financial requirement. However, you can opt for a credit card to meet your everyday needs.
If you are looking for such a card, then consider the One Credit Card. It is India’s first metal credit card, packed with exciting features and a sleek design. It gives definite 5X rewards on your top two spending categories and helps you elevate your savings.
You can enjoy no-cost EMIs for your big purchases and the best offers in different categories. You can even manage it with the smart One Credit Card App. What’s more, it’s a lifetime free credit card, so you don’t have to worry about the annual and joining fees. Apply online to get this card and access credit with ease.
