When there is an immediate need for liquid funds, you are lifting only with few options, either borrow from someone or take a loan. While borrowing might not be a preferred choice for many of you, the only option you are left with is taking a loan from a financial institution or a bank.
When we say cash loans, we all know you again have two options – a personal loan or a credit card loan. Either of the two, you will have cash accessible fairly quickly. But, where you get confused is the decision – which is better, a personal loan or credit card loan?
If we go by the books and listen to what experts say, you should opt for a credit card loan, if you are opting for a short term. On the flip side, a personal loan is a better choice, if you want the loan and want to repay it slowly over a longer-term. But still, you will need to see a lot of other factors like the rate of interest, and alike. To understand both the loans better, let’s take a dip at each of them individually, and then you can decide which type of loan suits you better.
Personal loans are categorized as unsecured loans that can be taken for any purpose, from medical emergencies to debt consolidation to travel needs to expensive purchases and more. Such loans are also categorized as Consumer Loans, which can be used for multi-purpose uses. There is no need for any collateral for personal loans and usually, the process of getting the loan sanctioned is very quick and hassle-free.
Personal loans are offered by banks and financial institutions based on certain designated criteria like your employment status, your monthly income, your repayment capabilities, the profession you are in, and your credit history.
When should you opt for personal loans?
You should opt for personal loans in conditions when you:
- Have to need for a higher amount of loans
- Want it quick and can’t wait for long for the loan to get approved and disbursed
- Would like to select an option between multiple loan options, and then take a call, and
- Need it for payments to be made in cash
- You need a lump sum amount for multiple payment needs and some of it may be needed to be paid in cash
Note: Before you take a personal loan, makes sure you look deeply into the following:
- The sum you require
- The tenure of the loan should suit your criteria of repayment
- If the requirement is small (opt for credit card loan)
Credit Card Loans
A Credit Card loan is a sort of pre-approved loan and hence, does not need any documentation to be submitted to the issuing bank. Such loans are issued to the user of credit cards based on their credit card usage, and repayment history. In a credit card loan, a certain part of the credit card limit that is unused or unutilized is offered as a loan. However, you must not mistake credit card loan is not equivalent to cash withdrawal from a credit card and is a very quick and convenient way of borrowing money in case you need quick money during financial emergencies. But, one thing you should keep in mind is that credit card loans usually have higher rates of interest, when compared to personal loans
When should you opt for credit card loans?
Credit card loans should opt-in conditions like:
- When you have an immediate need of cash
- When your fund requirements are comparatively smaller
- When you might have been refused a personal loan, and
- When the bank is offering an attractive rate of interest on loans as compared to personal loans
Note: Before you take a credit card loan, makes sure you look deeply into the following:
- You know that you are in a condition to pay your regular EMIs
- Credit card loans have a higher rate of interest
- You are in a condition to pay off the loan amount in a quick time
Personal Loan VS Credit Card Loan
However, personal loans and credit card loans look almost the same, they have quite a lot of differences, that you need to know:
- The Documentation Process
The documentation process with personal loans is a bit more cumbersome and requires quite a few documents to be submitted for approval. It also needs a few days for the loan to get approved.
On the other hand, credit card loans are pre-approved and need documentation. Once applied, you can get the money into your bank account instantly.
- The Interest Rates
This is one of the main factors that make both the loans stand apart. Where you can get a personal loan with interest rates somewhere between 9 to 24%, loans on credit cards are offered with interest rates between 12 to 36%. Another thing that you should look into is – credit card loans can be availed with a flat rate of interest, whereas, personal loans can be availed with floating or reducing balance rates.
- The Loan Tenure
Personal loans are offered with a long tenure of repayment, as compared to credit card loans, which you usually get for shorter tenures.
- The Loan Amount
Personal loans can be availed for a bigger sum up to 60 lakhs, depending upon your approval criteria, whereas, credit card loans are usually for smaller amounts for smaller tenures.
From the overall perspective, personal loans and credit cards may seem almost the same, and you can take either of the two depending upon your chosen criteria, but the main differentiator between the two is in the interest rates of the two.
It won’t be easy to say that one is better than the other, but you can take a call depending on your need, the perspective of the loan, and the circumstances that drive you to take the loan. The final choice depends on your need and preference.