Credit Card Loan vs Personal Loan
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It’s the beginning of the month and you’ve already spent your salary but you really need to buy new furniture for your house. Or you’ve a few leaves on your hand but the holiday you’ve been planning needs more funds than you’ve at your dispense at the moment. Feeling relatable? Understandable. At this point, two popular options might come to your mind: credit card loans and personal loans. Both offer a quick ticket towards financial salvation. But the decision between the two depends on a number of factors, mainly the amount and the urgency with which the money is required. The following article will explain to you the differences between them to help you make a decision you don’t regret later on.
Credit Card Loan vs Personal Loan: A Comparison
Here’s a side-by-side comparison of the features of both, credit card loans and personal loans to help you understand which option might be the best for you.
| Criteria | Credit Card Loan | Personal Loan |
| Type of Loan | Pre-approved, often as an extension of your existing credit limit | Unsecured loan offered based on income and credit score |
| Documentation | Minimal documentation required. Primarily based on your credit card history | Proof of identity, address and income required |
| Disbursal Time | Immediate or within a few hours | 3-5 Business days |
| Eligibility | Available to existing credit cardholders with good credit standing | Open to salaried and self-employed individuals with a strong credit profile |
| Loan Amount | Limited to the credit limit | Calculated by the bank based on income verification |
| Interest | Higher interest, impacting your EMI | Lower interest rates, with potential reductions via balance transfers |
| Charges | No processing fee in most cases | Processing fees, prepayment charges, and other administrative fees |
| Procedure for Borrowing | By accepting a pre-approved offer from the bank or submitting an application | By applying to a bank or financial institution with documentation |
| Tenure | Shorter tenure, usually up to 5 years. | Flexible tenures, usually ranging from 1-7 years |
Credit Card
What is Credit Card Loan?
A credit card loan is a pre-approved loan you can get based on how you’ve used and repaid your credit card. It’s quick, doesn’t need paperwork, and the loan amount is usually a part of your credit card limit that hasn’t been used. But unlike a cash withdrawal, this loan is offered directly through the card, and you’ll also be charged interest if it’s not repaid on time. So, while it’s convenient, it can get a little expensive if you delay payments and have to pay the high interest rates.
When to Opt for a Credit Card Loan?
Going for a credit card loan is practical when you need ready cash but do not have the time for very lengthy approval periods. It is ideal when the amount is not too large, and also when you fail the qualification test for a personal loan. In some cases, the rates of credit card loans are even much more gratifying than personal loans. So, it becomes a smart choice for meeting short-term financial needs.
How to Apply for a Credit Card Loan?
The process of applying for a credit card loan is relatively easy. Most credit card issuers today allow you to apply directly from their website or from their mobile app. Alternatively, you can call their customer service to help you with the application if you want. Once approved, the loan amount is either credited to your bank account or made available for spending on your card, so you can access the funds right away.
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Personal Loan
What is Personal Loan?
A personal loan gives you a set amount of money to use for various purposes, like home repairs or medical bills, which you have to pay back in installments. Unlike specific loans for cars or homes, personal loans are very flexible but may have some restrictions. It’s different from a credit line, where you borrow as needed, like with a credit card.
When to Opt for a Personal Loan?
If you require a larger loan, a personal loan will be the better option. Even though the procedure can take a longer period of time, the waiting is worth it when you require more funds. Personal loans also offer the flexibility to shop around, so compare different offers, and choose the best one for your needs. Additionally, if you have to pay a business or an individual who does not accept credit card payments, personal loans give you direct cash to use for bigger transactions.
How to Apply for a Personal Loan?
To apply for a personal loan, start by submitting an application to a bank or lender. You’ll be asked for some documents, such as proof of income and identity, along with your credit score, if required. Once your application is approved, the loan amount will typically be transferred to your account within a few days.
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Personal Loan or Credit Card Loan: Which is Better?
In the end, choosing between a personal loan and a credit card loan really comes down to your personal financial needs. Go through how much money you need and how long you plan to use it. This understanding will help you make the best decision for your situation.
- For Smaller, Short-Term Needs: A credit card loan is preferred if the requirement is less and urgent. The lesser interest charges and EMI are also beneficial, making it efficient for short-term goals.
- For Larger, Long-Term Borrowing: A personal loan is better suited for larger amounts and long-term financial commitments.
Conclusion
In the end, both personal loans and credit card loans can serve valuable purposes, depending on your circumstances. Understanding the strengths of each option will help you make a choice that aligns the most with your financial needs. Take time to consider your situation and choose the option that best supports your goals. With the right decision, you can navigate your finances with greater confidence and clarity.
Frequently Asked Questions (FAQs)
Do Personal Loans Hurt Your Credit Score?
When you apply for a personal loan, your credit score might drop a bit because of the hard inquiry. But if you make your payments on time, you can actually improve your score in the long run.
What is the Benefit of a Personal Loan?
A personal loan gives you a larger sum of money with fixed monthly payments, which can help you manage your budget more easily. Plus, it usually comes with lower interest rates compared to credit card loans.
Should I Pay Off My Credit Card or Personal Loan First?
It’s generally a good idea to pay off the debt with the higher interest rate first, which is usually your credit card loan.
What is the Risk of a Credit Card Loan?
The main risk with a credit card loan is the high interest rate. If you can’t pay it off quickly, the debt can become quite costly over time.
Do Credit Card Loans Affect Credit Score?
Yes, credit card loans can impact your credit score. If you borrow close to your credit limit or miss payments, it can hurt your score.
Priyanka Rao is a content strategist for Jupiter.Money, and specializes in writing on topics related to finance, banking, budgeting, salary & wages, and other financial matters. She has a passion for creating engaging content that resonates with audiences across various digital platforms. In her free time, Priyanka enjoys traveling and reading, which allows her to gain new perspectives and inspiration for her work. With a keen eye for detail and a creative mindset, Priyanka is committed to creating content that connects well with her readers, enhancing their digital experiences.
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