When it is about borrowing funds for making smaller expenditures, you can definitely look up to credit cards to make such buys. However, when you require making massive expenses that surpass your credit card limit, personal loans from a public bank, private bank or digital platforms like Money tap personal loan, Incred personal loan, etc. may come as a rescue to you.
Same as a credit card, you may borrow funds from financial institutions when you avail a loan. However, using cards makes you liable to make the amount repayment on a monthly basis while loans have a higher repayment duration. When it is about borrowing funds from a financial institution to mitigate your present expenses, there are 2 major ways of doing so – either you can select to swipe your credit card or take a loan by placing an application for personal loan.
Let’s go through the distinction between personal loan and credit card to find out which option would work best for you!
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What’s a loan against a credit card?
Credit card loan is a kind of pre-approved loan provided by a financial institution to you. As you hold a credit card with a financial institution i.e., the issuer, all your financial and personal info is stored with the issuer. Due to this reason, a loan against credit card does not require any kind of documentation process and hence are pre-approved in nature.
A credit card may be termed as the fastest way of availing an unsecured credit option. When you avail a credit card loan, the loan proceeds are debited from your available credit card limit and is ultimately transferred to your savings account. It should be remembered here that credit card loan is not the same as cash withdrawal via a credit card.
When can you apply for the loan against the credit card option?
You must apply for the loan against credit card option just in the below listed cases –
∙ If you require cash in the case of any exigency.
∙ If you require to mitigate expenditures of considerably smaller amounts.
∙ If you are ineligible or do not qualify for an instant or regular personal loan.
What’s a personal loan?
Personal loan is nothing but an unsecured credit option that might be borrowed from the lender for higher expenses. Usually, personal loan is availed in the case of property purchase, medical exigencies, beginning a new company, etc. Being an unsecured credit option, personal loans may charge a high rate of interest. Also, as the loan proceeds, in most of the cases of massive nature, such kinds of loans have considerably higher duration for loan repayment i.e., at least 5-6 years.
Also Check: Incred Personal Loan
Any of you can avail a personal loan. However, when you place an application for personal loan, you require first proving your eligibility criteria as a loan applicant for the same and next go ahead with the application as well as the authentication procedure to avail the loan proceeds in your bank account. If approved, the loan proceeds are disbursed on the same day of placing the personal loan application.
When must you apply for the personal loan?
You must apply for the personal loan in the below listed scenarios –
∙ When you require meeting the expenditures that include a massive amount of funds.
∙ If you have nearly a week’s timing to wait for the loan proceeds.
∙ When you take the decision to purchase a car, home or begin a business.
Even while both the credit options come with multiple similarities in terms of the provision of credit, like providing fixed amounts at pre-approved interest rate, month on month payments of the interest and principal amount, additional fees on the late payments and others. However, even after such similarities, there are various distinctions between personal loan and credit card loan.
Read on here to know the most common distinctions between the 2 financial instruments –
|Features||Personal loan||Credit card loan|
|Application process||You may be asked to show specific documents to place the personal loan for authentication or verification purposes.||In such loan types, you do not need to provide any additional documents as the lender already holds information about your identity and finances.|
|Loan proceeds||Such loans may be preferred in the scenario you require higher loan proceeds. In the case of personal loan, the offered loan proceeds may range anywhere between Rs 50,000 and Rs 40 lakh.||Such loans are suitable just if you need smaller loan proceeds as the amount is disbursed based on your available credit card limit. In a few cases, certain issuers may offer you to avail a loan over the credit card limit. However, the maximum loan proceeds available in such scenarios too is not very high.|
|Loan duration||Personal loans have higher repayment tenure of up to 5 – 6 years.||A loan against credit card does not come with a higher repayment tenure. The repayment tenure available is shorter.|
|Additional expenditures||Lenders levy processing charges and administrative fees for processing your loan application. Note that processing and administrative charges are not refundable in the case your loan application for personal loan is rejected.||Credit card loans may not charge any additional expense besides the rate of interest. However, there are few credit card issuers that may charge processing fees for availing loans against credit cards.|
|Eligibility||Even a non-customer of the financial institution can place the application for a personal loan. And to be eligible for a personal loan at a lower interest rate, a high credit score of over 750 is a must.||Only the credit card user can place the application for this kind of loan. As such loans are usually preapproved in nature, not much emphasis is given on your credit score and credit profile as in the case of a personal loan.|
|Loan amount disbursal||The loan proceeds payment is done in lumpsum in your savings account or through cheque once your application for personal loan is approved.||Your loan proceeds are transferred immediately directly to your current or savings account after your loan against credit card application approval.|