Personal Loan Vs Credit Card – Which is better?
Personal Loan Vs Credit Card loan: Let’s have a glance on the differences between personal loans and credit cards’ loan and figure out what is suitable to you.
![Personal Loan Vs Credit Card – Which is better? Personal Loan Vs Credit Card – Which is better?](/files/iifl_insights/images/Personal-Loan-Vs-Credit-Card-Which-is-better.webp)
Personal loan or credit card? Are you in dilemma about your suitable lending source? Both meet different requirements; you just need to find out the best possible option for your situation. As both are an unsecured loan, they do not require any collateral. Even the loan processing fee and interest rate are more or less similar in both the sources. Let’s have a glance on the differences between personal loans and credit cards’ loan and figure out what is suitable for you –
1. To avail loan on a credit card, you need to have the bank’s credit card. Whereas, in the case of a personal loan you can approach the bank directly and put forth your plea for a loan.
2. The next difference we can trace in the borrowing limit. In the case of credit card, we can borrow even small amount like Rs 3,000 & Rs 5,000. The repayment amount for the loan can be converted into EMIs. However, in the case of personal loans, you can’t borrow less than Rs 40,000-50,000 at least.
3. In the case of personal loans, few documents are required such as bank statements, address proof and salary slips to establish your eligibility for the loan. Whereas, there is no need to submit any document for a loan on your credit card.
4. If you want to avail loan for a short tenure say for just 6 months, then go for credit card loans. Why bear the burden of interest rate for a long time if you can pay your debts fast. However, you need to do a little homework in this regard as the prepayment in credit card means penalty. Personal loans are offered for a minimum 1-2 year period.
5. The key difference between personal loan interest rate and credit card loan interest rate is noteworthy. The loan on a credit card usually comes with 16-20% interest rate. Whereas, 10-15% interest rate is applicable on a personal loan. People usually get confused between ‘the interest rate on cash withdrawal’ and 'loan on the credit card’. Cash withdrawal comes with even more high-interest rate i.e. 24%.
6. In the case of personal loans, the interest rate is negotiable. Whereas you have planned to tie up yourself with credit card loan, your interest will be fixed.
7. Whenever you have excess funds… you want to prepay your outstanding dues. Right. In the case of personal loans, you can prepay the same and get relief. However, a loan on credit card usually comes with 3% prepayment penalty.
8. Though personal loans are cost efficient but you enjoy a plethora of travel benefits & rewards, discounts & insurance coverage on a loan at credit card.
9. For appliances & electronic items, it’s better to make use of your credit cards because the purchase comes with extended warranty and after sales services.
Case Study
1. Virender, a quality auditor in an e-commerce company is seeking extra funds to meet his marriage expenses. The credit limit of his card is Rs 1, 60,000. A bank is ready to offer him Rs 4 lakh as a personal loan. Though the amount from the bank is more, but Virender has decided to go with the usage of credit card. This is because he wants to close the loan early as he is expecting money from the maturity of his Kishan Vikash Patra (KVP).
2. Abhijeet wants to study Medicine abroad. He wants a loan of at least Rs 10 lakh. Though he has a credit card but due to the low limit of the card, he decided to avail the personal loan.
Read More Here: Myths About Personal Loans
Disclaimer: The information contained in this post is for general information purposes only. IIFL Finance Limited (including its associates and affiliates) ("the Company") assumes no liability or responsibility for any errors or omissions in the contents of this post and under no circumstances shall the Company be liable for any damage, loss, injury or disappointment etc. suffered by any reader. All information in this post is provided "as is", with no guarantee of completeness, accuracy, timeliness or of the results etc. obtained from the use of this information, and without warranty of any kind, express or implied, including, but not limited to warranties of performance, merchantability and fitness for a particular purpose. Given the changing nature of laws, rules and regulations, there may be delays, omissions or inaccuracies in the information contained in this post. The information on this post is provided with the understanding that the Company is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. As such, it should not be used as a substitute for consultation with professional accounting, tax, legal or other competent advisers. This post may contain views and opinions which are those of the authors and do not necessarily reflect the official policy or position of any other agency or organization. This post may also contain links to external websites that are not provided or maintained by or in any way affiliated with the Company and the Company does not guarantee the accuracy, relevance, timeliness, or completeness of any information on these external websites. Any/ all (Gold/ Personal/ Business) loan product specifications and information that maybe stated in this post are subject to change from time to time, readers are advised to reach out to the Company for current specifications of the said (Gold/ Personal/ Business) loan.