What is your plan for getting cash or credit when you don’t have enough money? You have the option of using your credit card loan vs personal loan. To choose between the two, you will need to conduct a comparison based on your requirements and circumstances.
For example, until the stated period has ended, you must pay money in monthly installments for credit cards. On the other hand, a bank loan is to be paid on time, and the second difference is that banks typically give personal loans for a more extended period, but a credit card allows you to set your installments according to your needs.
Let’s examine the differences between credit card loan vs personal loan and determine which is best for you! Read this article to know what you should choose between personal loan vs credit card loans. Towards the end of this post, you will find out which personal loan vs credit card is better for you!
Personal Loan Meaning: What Is A Personal Loan?
Before understanding the difference between personal loan vs credit card loan, lets understand what a personal loan is!
Personal loans are short-term unsecured loans that financial institutions offer. They are offered to the client’s based on their employment history, repayment capacity, income level, profession, etc. A personal loan, often known as an immediate cash loan, is a multi-purpose loan that can be used to meet a range of short-term financial needs.
How Does Personal Loan Work?
A personal loan is a form of unsecured loan paid in installment on the due date. Unlike a credit card, a personal loan is a lumpsum amount lent to the borrower. The borrowers have to repay the loan in regular monthly installments, plus interest, throughout the loan’s tenure.
The personal loan can be availed to meet the following:
- Buying an automobile
- Paying your rent and buying groceries
- Getting rid of credit card debt
- Paying Medical bills
- Going on vacation
Credit Card Loan Meaning: What Is Credit Card Loan?
Now that we have a better grasp of personal loans, let us try to comprehend the definition of credit card loans.
As the name implies, a credit card is a pre-approved loan that does not require any paperwork and is the easiest way to obtain credit. This loan form does not require considerable documentation except for paperwork proving your eligibility. In addition, because it is an unsecured loan, no collateral or security is needed in exchange for the loan amount. You would be able to understand what to opt for between a personal loan vs credit card loan after understanding how credit card loans work.
How Do Credit Card Loans Work?
When you need to make a large or small purchase, a credit card loan might be a convenient and quick way to pay for it. They are helpful both online and offline. But, like anything else, the credit card has a price. Suppose you lose control of your credit card transactions and cannot pay off your whole balance within the stipulated payment cycle. You will be obliged to pay significant interest on the remaining balance. And it adds up quickly, trapping you in a debt cycle.
Credit cards provide a line of credit that may be used to purchase items, and then the balance transferred and cash advances require you to repay the loan amount in the future. Also, if you use a credit card, you must make at least the minimum payment each month by the balance due date.
Credit Card Loan VS Personal Loan: Comparison Of Personal Loan And Credit Card
Now, let us now try to understand the difference between credit card loan vs personal loan below: Also, these parameters are highly important when you choose between a credit card loan vs personal loan:
|Difference||Credit Card Loan||Personal Loan|
|Eligibility||Some of the shareholders can apply||Non-bank consumers are also eligible to apply|
|Interest Rate||Higher than personal loans; varies by bank, and may also fluctuate by customer||Starting at 10.50 per cent, depending on the customer’s income and credit history|
|Tenure||Usually between 1 and 5 years||Usually between 1 and 5 years|
|Borrowing Procedure||Accepting a bank’s pre-approved offer or applying for the same||Applying with papers to a bank or financial institution|
|Disbursement||Amount is directly credited to a savings/current account (if with the same bank) or as a check||Amount is paid in one go to the customer’s savings/current account or via check|
|Approval Time||Within 1 day||In 3-5 business days|
|Borrowing Limit||Up to the provider’s predetermined maximum||The bank compute the borrowing limit based on confirmation of income|
|Documents||Additional documents are not required||Documents like your identity proof, address, and income are required|
|Repayment||EMIs for the stated period is applied to the monthly credit card statement||EMIs are paid to the bank for a set period|
So, these were the differences between a credit card loan vs personal loan. Now, let’s discuss the pros and cons of Personal Loans first!
What Are The Pros & Cons Of Personal Loan?
Since we have seen the difference between personal loan vs credit card. Now let us now have a look at f the pros and cons of a personal loan:
|Personal loan eligibility criteria are less severe than credit card eligibility criteria||Personal loans typically have interest rates ranging from 13 percent to 36 percent, plus processing fees, slightly more than credit cards|
|Personal loans are suitable for debt consolidation because they have a low-interest rate||With a personal loan, you are bound by a set payment schedule|
|It’s perfect for when you require a large sum of money to pay for many things, some of which may be cash||Your credit score (together with other parameters such as income) should be high to acquire a low-interest rate on your loan|
|You can apply for a personal loan either over the phone or online||The availability of documentation is critical in the loan approval procedure|
|Within 30 minutes of your documents being validated, the funds are transferred to your account|
What Are The Benefits & Drawbacks Of A Credit Card Loan?
Listed below are some of the benefits and drawbacks of a credit card loan:
|A credit card can be applied for at any time you need one, and it required no additional proof||Various fees like Annual fees, late fees, and over-the-limit fees apply on credit cards|
|Most people can qualify for a credit card loan if they have a strong credit score||The interest rate can be extremely high depending on your card’s APR|
|You don’t even have to go to a bank to apply for a credit card loan||To be eligible for a credit card loan with the lowest interest rates, your CIBIL score must be at least 700|
|Select cards also give the ability to transfer balances at no interest for a period ranging from 12 to 21 months, which is great for debt consolidation||Most services can be paid for using a credit card, but you will have to pay extra interest if you require cash because cash withdrawals collect interest from day one|
So, now that we have covered some of the primary disadvantages of a credit card loan vs a personal loan, let’s look at when is the best time to apply for one.
When To Apply For Personal Loan?
You should first assess your financial circumstances to see if a personal loan is an appropriate solution. The following are some examples of when you should apply for one:
- When you need concrete debt consolidation choices
- If you require a more extended payback period
- If you require funds to make any cash payments
- In case you need to pay for a company or someone who does not accept credit cards
- If you can wait for up to a week for the loan to get approved and disbursed
When To Opt For A Credit Card Loan?
Here are some situations when you can opt for a credit card loan:
- When you need money, you can take out a credit card loan.
- When you are unable to obtain a personal loan
- When you need cash urgently
- In comparison to a personal loan, if the interest rate is attractive
- When your requirements are pretty small
Which Is The Best Credit Card Or Personal Loan?
Now let’s see which is better: a credit card vs. a personal loan. Usually, a Personal loan is available at a fixed rate of interest. It is sanctioned for a tenure of between 12 and 60 months payable via equal monthly installments or EMIs that include the principal and the interest component. Availing personal loans for salaried individuals is more accessible than those for self-employed people. A credit card loan referred to as revolving debt. The borrowed amount depends on the funds spent on the card and the balance left at the end of your monthly billing cycle. So, availing of a personal loan is a better option than opting for a credit card, and there are several online loan providers, namely, Loaney, where you can get the loan in just 10 minutes up to Rs. 20,000.
5 Reasons Why Personal Loan Is Better Than Credit Card
The following are five reasons why a personal loan is preferable to a credit card:
1. Personal loans offer affordable interest rates than credit cards.
2. When you have a credit card in your hand, there’s a good chance you’ll use it for small and big purchases. As a result, it may affect your spending patterns, causing you to misuse your credit card. On the other hand, you only get a one-time lump sum payment when you acquire a personal loan, so you have to be extra careful how and what you spend it on. This helps you stay on track and avoid overpaying!
3. Although Credit cards provide more freedom because you can access funds 24 hours a day, practically instantly. However, they do so at the expense of a larger window for losses and bad debts. On the other hand, personal loan EMI requirements teach you financial responsibility and encourage you to save.
4. A personal loan is relatively easy to obtain if you have good credit, but lenders still specialise in personal loans for those with bad credit. Getting a credit card with a bad credit score, on the other hand, is challenging.
5. If you are approved for a personal loan, each lender has a different time frame for getting your money, but some lenders even offer same-day funding.
So, hopefully, we have clarified the distinctions between personal loan vs credit card. Personal loans and credit cards can be structured in various ways, each with its own set of terms and conditions. Personal loans have lower interest rates than credit cards but must be repaid over a set period. Therefore, personal loans are preferable to credit card loans because they save time, effort, and interest. So, what do you think is better among credit card vs personal loan? Please get in touch with Loaney if you have any questions.
Frequently Asked Questions
Here are some of the frequently asked questions about personal loans vs credit cards:
1.What is the difference between a personal loan and a credit card loan?
The primary differences between a personal and a credit card loan lie in interest rates, repayment terms, maximum loan amounts, eligibility requirements, and application processes.
2.Is it better to take a loan or use a credit card?
A personal loan is preferable to using a credit card because it is created for people who can pay off obligations over time. In addition, unlike credit cards, it does not put monthly payments on the borrower. As a result, a personal loan is preferable to a credit card.
3.Why is a credit card worse than a loan?
If you need to borrow a substantial sum of money and can make regular payments, a personal loan is preferable to a credit card. A loan allows you to borrow more money at a lower interest rate than a credit card.
4.Is it worth taking a loan on a credit card?
Taking out a credit card loan is only worthwhile if you can make monthly payments, including interest. A credit card loan is a quick and practical choice for those who require immediate cash to deal with unanticipated circumstances.