Do Credit Card Loans Make for a Better Choice than Personal Loans?

Updated on: 27 Jul 2023 // 18 min read // Credit Cards // Personal Loans
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Everyone goes through some financial turbulence at some point in time. In case of an emergency, be it medical or personal; one ought to look for a quick financial assistance or a way-out through friends and family, or consider breaking savings, fixed deposit, liquidate assets or borrowing some loan from a bank!

Credit Card Advance and Personal Loan are two of the common options open to most of us.

A personal loan is an unsecured loan availed solely on the basis of your current financial status. You need to provide income documents, and accordingly, the loan will be issued.

A Credit Card loan, on the other hand, is a pre-approved loan drawn against your Credit Card; the credit card provider issues the required funds against the Online Credit Card limit in the form of a loan (credit advance) which you are required to pay back in equated monthly instalments over a period of time.

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Let’s figure out which of the two is a better choice and why should you opt for one?

Loan amount:

Before you apply for credit, it is essential to assess how much you want to borrow.

Most banks offer Personal Loans, ranging from Rs. 50,000 to 40 Lakh. So you have complete flexibility of applying for a loan amount, subject to your eligibility for the same. The application is approved basis your credit history, credit score, employment status and documents provided. Your eligibility is assessed after you submit your age proof, address proof, ID proof, and income proof. Based on the credentials provided to the bank, the loan application is approved and processed. 

However, a Credit Card Loan entails a percentage of the amount against the approved credit limit. It is very simple; your credit card outstanding amount is converted into liquid and credited into your bank account. So, you cannot borrow beyond the approved limit. Thus, credit card advance is suitable for those who require smaller amounts instantly.

Documentation procedure:

A Credit Card loan is a pre-approved loan on your Credit Card; hence no documentation or application is required. Since the credit card company already has all your documents and all information about you, they would not ask for any documents. You just need to book a loan, and the amount is instantly processed to your savings account. However, a Personal Loan requires step by step processing, including loan documentation procedure, verification, and approval based on analysis of documents provided.

Rate of Interest:

If you Avail a Personal Loan, an average rate of interest would be anywhere between 13% to 22% p.a. in most cases; while, for Credit Card Loan, the rate of interest can be marginally higher.

Tenure of the Loan:

In Personal Loans, you generally avail the loan amount for up to 60 months of period at a fixed interest rate. However, Credit Card loans get expensive after interest-free credit period of up to 45 days. Extended loan tenure results in higher interest on credit. 

Credit Limit:

With Credit Card loans, your credit card limit is compromised and might hurt your other expenses. However, that’s not the case with Personal Loans; you can still use your Credit Card limit while using the Personal Loan. So Personal Loans are basically a more organized and strategic way of borrowing.

Disbursal of funds:

The time for loan disbursement is another important factor that differentiates the two types of credit forms in discussion here. With a Credit Card loan, it generally is instant processing; whereas a Personal Loan may take 48-72 hours to be processed, approved and disbursed. Although many banks like ICICI Bank Personal Loan claim that the Personal Loan will be disbursed within 24 hours itself. However, the disbursement is always followed after the verification of documentation submitted.

In all, both Credit Card Loans and Personal Loans, are two quick instruments of borrowing emergency funds. However, you must assess your personal situation carefully before choosing a more suitable alternative for you.

When you should avail a Credit Card Loan:

  • When your requirement is within the approved credit limit
  • When you need instant funds
  • When you intend to pay out within a few months.
  • When you want to make a single payment

When you cannot avail a Personal Loan owing to eligibility or other issues.

When you should avail a Personal Loan:

When you require a larger amount, much greater than your Credit Card limit.

When you seek huge funds and require substantial time for repayment.

  • When you do not want to lock your Credit Card.

Thus, there is no one-size-fits-all financial product. You must always choose according to your personal requirements. Carefully assess the situation and compare available products before signing the dotted lines.

Also Read: Credit Card or Personal loan: How to Decide?

To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 70+ Banks and NBFCs. We have served 2 million+ happy customers since 1989.

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