Credit Card Loan vs Personal Loan: Which one is Better for You?

Credit Card Loan vs Personal Loan: Which one is Better for You?

A personal loan and a credit card loan offer an approach to acquire funds and have a significant number of similar standard credit arrangements when in need. Hence, these have become a convenient financial tool in the market today. 

In both types of loans, you will normally discover funds offered from a loan specialist at a predefined interest rate, regularly scheduled instalments for repayment, late fees, guaranteeing necessities, and many more. Misusing either kind of credit can subvert your CIBIL score, causing issues with other unsecured loans, applications for house loans, and other such benefits.

However, to further understand what differentiates the two types of loans in the subject, let us further dissect their features, benefits, interest rates, market benefits, and the strategic financial management that they aid to. Towards the end of this article, you’ll have sufficient insight on the subject of credit card loan vs personal loan for your informed acquisition of either of these.

What is a Credit Card Loan?

A credit card loan falls in the category of revolving credit. How a revolving credit works are, the borrower commonly has continuous admittance to the predefined finances as long as their record stays on favourable terms. Here the interest rates are comparatively on a larger scale than personal loans.

A credit card works uniquely in contrast to a personal loan. Borrowers can get access to a predetermined sum, yet they don't get that sum in full. Here, the borrowers can take finances from the banks at their caution whenever they need, limiting to the maximum principal amount that was agreed at the time of acquisition of your credit card. As a credit cardholder, you’ll be required to compensate for the interest on the funds you use in due time to keep the balance of the cycle of continuous receiving and giving.

By and large, each kind of credit card will have its unique way of collecting interest, so it is imperative to peruse all the details before opting ahead. In contrast to personal loans, where your repayment amount in scheduled instalments remains fixed in regular EMIs, a credit card bill will fluctuate every month.

Benefits of Credit Card Loan

Some of the most renowned benefits of credit card loans are as follows:

• Seamless and convenient approvals

Credit card loans are unsecured, and they all fall under the category of pre-approved loans. There is no stringent documentation required to acquire a credit card in your name. The only thing to take care of is a good record of repayment, a good CIBIL score, and a clean track record of your previous cards, if any.

• Simple repayment

Your credit card monthly bills can be paid through multiple offline and online modes of payment. As a card user, you have a wide array of options, including payment through net banking, mobile banking, or offline methods such as OTC or cheque payments, at the ATM, or even using your BHIM/UPI apps. You can also opt for an auto-debit facility for the payment of the bill wherein the monthly bill will auto deduct from your savings account without you taking the stress of missing the deadlines.

• Smooth and flexible

When you opt for a credit card, your funds are instantly made available. There are no delays in terms of application ques, processing time, or other such hassles in cases of other conventional loans. You may even get an option to make a purchase and pay the amount later in EMIs, making the entire process completely customisable as per your preference. 

• No guarantor 

Credit card loans fall under the category of unsecured loans, which simply means that there is no need to provide collateral or provide a guarantor at the time of application. 

• Added boost – Balance transfer

Most of the banks in the market today also give you a choice to move the outstanding balance from different cards to one single card and pay the bill in EMIs on your Loan on Credit Card. You don't need to stress over taking care of scattered loans on various records along these lines. Utilising this service, you can merge every one of your loans in a solo record and pay them off in EMIs.

What is a Personal Loan?

A personal loan is a specific amount of cash you can get to use for an assortment of purposes. For example, you may utilise a personal loan to meet your pending financial obligations, pay for home redesigns, or plan a fantasy wedding. These loans today can be offered by banks, financial associations, or online loan specialists. The cash you acquire needs to be reimbursed over the long run in fixed EMIs or premiums. 

A personal loan assists you in acquiring cash to pay for your specific day to day needs, helping in quick resolutions of immediate dues that can later be repaid in smaller amounts over a fixed time duration. Unlike credit cards, when you opt for a personal loan, you get a lump sum amount at the time of application as a single acquisition and not a continuous cycle of acquiring funds over the duration of time.

Benefits of Personal Loan

Some of the most renowned benefits of a personal loan are as follows:

• Stress-free process

To apply for a personal loan, you can visit the net banking portal of your bank and get the loan instantly. You can go to your bank’s nearest branch or ATM and get the loan with a quick process and minimal documentation requirements. 

• On-the-spot acquisition

Personal loans can be pre-approved, wherein it takes a maximum of 10 seconds for the funds to reflect in your account once the application has been submitted and accepted. 

• A wide array of uses

Unlike other types of loans specified to be used for a particular purpose, the most advantageous feature of a personal loan is that it can be used for any personal reason. From a vacation to a home renovation or to plan your dream wedding, the possibilities are endless.

• Simplified documentation

The desk work and the processing time needed for a Personal Loan are much lower than most of the other categories of loans. You can get a credit with the accompanying reports: ID confirmation, address verification and income evidence. On the off chance that you are pre-approved for a Personal Loan, you may not have to present any document at all.

• Pocket-friendly repayment

You can take care of your Personal Loan in simple portions or EMIs. The instalment terms are generally adaptable, and you can pick a tenure that permits you to dispose of the funds monthly as per your convenience and capacity. 

Credit Card Loan vs Personal Loan

Now that we have understood both the loans at an individual premise let’s answer the big question of credit card loan vs personal loan.

• Documentation:

Documents needed for personal loans are ID proof, address proof, and income statement and evidence. 

There is no document required in the case of a credit card.

• Credit card loan vs personal loan interest:

This is the main highlight to be put under consideration while taking any sort of loan. For the most part, personal loans are offered at a 13-22% interest rate, while card credits offer a 10-18% loan fee.

However, also take a note that in the case of credit card loans, they can be availed at flat interest rates, while personal loans are available with reducing balance rates.

• Unsecured Loan: 

Both these loans fall under the category of unsecured loans with no requirement of guarantor or collateral. 

• Tenure: 

Credit card loans are opted for lower tenures, with the billing cycle usually ranging from 28-45 days after utilising the funds.

Personal loans are usually fixed over a longer tenure for easy EMIs.

• Loan Amount:

A credit card loan is your go-to choice when your requirement is of smaller funds from time to time. 

With personal loans, you should opt for this facility if a more significant sum is required.

After comparing the two credits, you can settle on a decision depending on your monetary need, the time period for which you need the advance and how soon you need it. When you yourself have clarity about your prerequisite, it is simpler for you to settle on the right decision.

When Should You Choose a Credit Card Loan?

This category of loan is suitable for you if you find yourself in need of a smaller amount of finances. Ideal for a short period of tenure, credit cards can help you in your regular purchases with the worry to pay them off sometime next month.

When Should You Choose a Personal Loan?

You should choose a personal loan in case of the following:

• You don’t have a credit card, or you couldn’t qualify for one due for any reason
• You need a more significant sum but without any collateral to offer
• If you need the lump sum amount for a predefined short period, let’s say 2 to 3 years only. Personal loans typically run from 12-60 months.

FAQs

Q1 What is better for a credit score, personal loan or credit card?

Both personal and credit card loans can assist you with further developing your CIBIL score whenever paid ideally and in due time. In any case, a personal loan has a more drawn out reimbursement tenure and can be viewed as a superior decision for building a CIBIL score.

Q2 Is a loan on a credit card considered a term loan?

A credit card loan comes under the category of an unsecured loan. It is very similar to a term loan,, like acquiring cash for a shorter period of time to pay for the day to day requirements. 

Q3 Should I take out a personal loan to pay off credit cards?

This can be done when you cannot pay off the balances of your overdue credit cards. In fact, it is considered a good option to go for a personal loan plan with lower interest rates and use the same amount you’ll receive instantly to pay off the overhead liabilities.