Personal Loan Vs Credit Card – Which is better?

Dec 14, 2016 13:45 IST 927 views

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.

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