Personal loan vs credit card: We tell you when to avail what
Often, we are short of funds for some urgent needs that requires us to borrow money. Stuck in cash crunch, what do you do then? Swiping credit card or taking a traditional route to apply for a personal loan?
While both options serve the same purpose, they differ when it comes to specific needs.
We tell you the difference for you to decide which one will suit you best:
Taking a loan on credit card is simple. It doesn't require documentation. It is a pre-approved unsecured loan. A part of customer’s unutilised credit card limit is offered as a loan.
Personal loan is given considering the credit history of the customer. It is an unsecured loan, not backed by collateral such as home or car. Taking a personal loan involves a lot of paper work and can be availed only after it gets sanctioned.
1) Interest rates
Interest rate on personal loan is lower than that on credit card. Usually, person loans are offered at a 13-22 per cent interest rate, while credit card loans offer interest rate of 10-18 per cent. Interest rate on credit card is charged at a flat amount, for personal loan, it is calculated on reducing balance.
2) Paying back
Full amount of credit must be paid back in one go on credit card loan. Personal loan can be paid off on EMIs.
3) Loan amount and tenure
Credit card loans can be taken for lower tenure periods, while personal loans are usually long duration loans. Former suits better when in need of a small amount of loan, while latter comes handy when you need a huge loan.
If you don't have a credit card, and you need some loan in a matter of A day, you better go for personal loan. Procuring a credit card usually takes 7-15 days, while personal loan can be availed in a day given credit score is good and all documents are readied.