Loan on Credit Card or Personal Loan: How to Decide?
Loan on Credit Card or Personal Loan: How to Decide?

Emergencies often come unannounced and are usually packed with an urgent need for funds. It could be a crisis, a medical emergency, or other unprecedented situation.

What should you do in such a situation? Shall you approach your family and friends or try borrowing from colleagues? Well, not always do the external resources come to your rescue. In maximum cases, a viable option would be to take up a loan from a Bank.

Most banks offer loans to customers when they need money, which can be repaid in easy monthly instalments, commonly known as EMIs.

Now, the next question is what type of Loan would be the best suited for your situation. Should you look for a Personal Loan or advance a Credit Card Loan? These are two of the most hassle free and fast credit options available to most of the people. Both have been designed for ease of borrowing and repayment flexibility.

Let’s look at the difference and similarities between the two and see which is ideal for a specific individual situation.

Loan Purpose: A Personal Loancan be used for anything at all; the money can be used for any purpose – medical bills, for a family vacation, for a house renovation or a business purpose as well. Banks will not be bothered where you are using the disbursed Personal Loan. Likewise, the end use of the Credit Card loan is also unrestricted; you can use it as desired and pay it back in EMIs.

Application procedure: For a Personal Loan, one need to apply for it with a bank and it will be sanctioned on the basis of the individual's credit score and financial documents; you will need to produce the required documents and wait for a few days before it is approved. When you apply for a Personal Loan, it usually takes a week to 10 days maximum for the Loan to get approved and get processed for the final disbursal. However, some banks get it done faster as well; for example, HDFC Personal Loan can be availed within 4-5 days of application.

On the other hand, the Credit Card Loan can be processed much faster. However, it can be advanced for up to the limit designated by the bank. Credit Card loans are the credit facility offered to an individual, basis their Credit Card limit and usage history. These are pre-approved loans, which can be availed against the Card limit. Once you avail a loan up to full limit against your Credit Card, your credit card gets blocked, and that amount is given to you as a loan in a lump sum, which you need to repay in the form of EMIs.

Applicable Interest Rates: The rate of interest also plays a major role in deciding which of the two loans could be a better bet. A Personal Loan will charge you anything between 11% - 30% depending upon the bank that you are taking it from. While, a Credit Card loan could be a more expensive affair.

You stand a chance to reduce the Personal Loan Interest Rate of the Loan with a high Credit Score and high-income credentials.

Tenure of the Loan: A Personal Loancould be typically taken for a longer period for up to 5 years as well, whereas Credit Card loans are given for a shorter period, typically 1-3 years.

Loan Amount: The loan amount that can be sanctioned in either of these options also plays a major role in deciding which of the credit options to choose from. If you are in need of a higher amount, then you would surely go for that option which would enable you to borrow that much. In a Personal Loan, you can surely go for a higher amount depending upon your financial credibility, documents that you produce; but with a Credit Card loan the bank decides the limit, and assigns the amount to you. This amount is generally equivalent to the existing Credit Card limit and you cannot go beyond that. Hence, if you need a loan for a higher amount than your card limit, then you are required to opt for a Personal Loan.


Final Words
Now that you are aware of the difference between the Personal Loan and the Credit Card Loan, you can evaluate and decide confidently which one would be more feasible for you. All factors ranging from Loan Amount to Tenure of Repayment to Application Procedure and Interest Rates, play an important role in making a wise loan decision. 

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