Are Credit Card Loans Better Than Personal Loans?

Wise people often advise to avoid unnecessary debt like the plague. But sometimes, taking on debt becomes essential. For instance, if someone needs money for a family member’s emergency surgery but doesn’t have enough savings or during once-in-a-lifetime occasions such as a wedding. And then, there are occasions when one just wants to splurge on lifestyle choices such as buying a big-screen television or going a foreign vacation.

To deal with such situations, people these days have multiple options to borrow from banks and non-banking finance companies (NBFCs) as well as a growing number of fintech lenders. The most common among these options are credit card loans and personal loans.

Used judiciously, these loans can help ease short- or medium-term financial strain one witnesses in everyday life. Banks, NBFCs and many fintech companies provide credit card loans and personal loans to help people face any shortfall of money, mostly in a few clicks on their website or a few taps on their mobile phones.

However, a prospective borrower needs to be clear about both the options before opting for one.

The Why And How Of Personal Loans

Personal loans can be availed by every individual to meet medical exigencies, children’s education, organize a wedding in the family, for renovating their home or any other legitimate financial need. Personal loans come handy when there is an immediate need of cash, especially when people require more money than their credit card limit.

Taking a personal loan has become simple these days, with most lenders using an online process to seek and process loans applications. Prospective borrowers need to submit requisite documentation along with the application, and the personal loan is approved within a few days. Thereafter, the lender transfers the money directly into their bank account or issue a cheque that one can collect from the branch office.

The individual’s borrowing limit is calculated basis proof of income they provide and their credit history. The loan can be repaid as equal monthly installments over a specified tenure agreed with the lending institution. The interest rates are often more competitive than credit card debt, though the actual interest rate charged depends on the customer’s income and credit history.

The Why and How Of Credit Card Loans

A credit card is a convenient option to spend money and pay it back later. People can use credit card in-store or online. Here the credit card provider directly pays money to the merchant on a card swipe.

The maximum spending limit on the credit card varies from lender to lender and from person to person. The limit depends on several factors, such as the customer’s income and banking transactions, credit scores and repayment history. In general, credit card issuing companies provide up to 45 days to customers to clear their credit card bills.

In addition, many people who use credit cards often get an offer from their lender for a loan over and above their credit limit. Credit card loans, too, can be used for small or big purchases for business and personal financial needs.

The credit card loans generally get approved within a day or two, and are extended basis the customer’s credit card usage and repayment history. The interest rates on this debt may vary from bank to bank or even customer to customer. The person availing a credit card loan can repay at the end of credit period. Moreover, EMIs are added to monthly credit card statements for the pre-decided tenure, easing burden for many.

Credit cards loans give borrower access to funds as long as the account remains in good standing. However, the cost of such loans may be higher than personal loans, especially in case of delayed or part-payments.

Which Option Is Better?

It depends on each individual’s financial needs and comfort levels. It also depends on whether the need for funds is immediate or one has time on hand. Prospective borrowers should also decide whether the financial need is for the short or medium term as also their repayment capacities.

In general, personal loans turn out to be cheaper than credit card loans and are equally quick and convenient to take. Also, for personal loans, prospective borrowers have far more lenders to choose from and greater flexibility to select one than in the case of credit card loans.

In either case, borrowers should choose the lender carefully and opt only for reputed lender. IIFL Finance, for instance, offers personal loans via a fully online process that can be completed in just a few minutes. It sanctions personal loans from Rs 5,000 to Rs 5 lakh for tenors up to three-and-a-half years, and even customises repayment schedules to make it easier for borrowers to clear their debts without any financial strain.