Difference between Personal Loans and Credit Card Loans

Posted by poonam dambare on October 1st, 2018

Difference between Personal Loans and Credit Card Loans

Difference between Personal Loans and Credit Card Loans

So, what’s your plan of action, when you need urgent cash to meet your emergency needs and demands? Considering, there’s no one to help you out and you are left alone on your own, what is the first step, which you take to ease out the cash need for your emergency financial crisis? Are they, the Credit Cards or the Personal Loans?

So, the question arises! Personal loans or the Credit Card Loans? If you are in dilemma, over the choice among them, you just need to look at several factors of both of them and should look towards yourself, in an effort to judge, what suits you the best?

You may opt for swiping of your credit cards, or else you go for the traditional step of approaching your bank for the Personal Loan? The choice is yours! But, before making a choice of either of them, let’s take a deep dive in all important factors, plus points and downsides of both, the credit card loans and Personal Loans, before making a choice:

Personal Loans

Personal Loans are the unsecured Loans, which can be availed for various purposes. The purposes like Paying Medical Bills, Buying expensive gadgets or items, Planning a vacation or a trip anywhere, getting a home renovation work done, paying tuition fees, and all other works, which you can think of, can be covered by Personal Loans, without requiring to mention the specific purpose to the lending party.

The Personal Loans are one of the fastest loan types in terms of approval, which requires a time limit of a maximum of around 24 hours for the approval. There are several people, who are offered pre-approved Personal Loans, thus helping them in the process for the instant cash needs. The Personal Loans are the unsecured loans and require no collateral at all. However, the approval for the loan amount and the rate of interest depends on the person’s repayment eligibility along with several other factors like CIBIL Score, Employment Status, the firm you are working in and many other such factors.

While the Personal Loans are often availed for improving the Credit Score, the Personal Loans accompanies with several benefits besides the fulfillment of the need of the urgent requirement of a loan.

Credit Card Loans

The Credit Card Loans are too, the unsecured loans, which can be used for any purpose, just like Personal Loans. This credit Card Loans can be availed as the part of the Amount, which is left unused at your credit limit, and only a certain portion (as defined by the Credit Card Company) of the total limit, can be extracted physically from any ATM or can be availed as loan on the credit card scheme.

The Credit Card Loans are only available to the credit card holders and can be availed only from the bank of which the credit card is. The Credit Card Loan comes with several salient features, with several factors like ease of getting the loan, along with the no documentation requirement feature of the credit card loan, favoring it.

However, remember that the Cash Withdrawal and Loan on the Credit Cards are two different things. It has been seen that most people get confused over both the terms, while the Cash Withdrawal is the money, which you can extract from the ATM, Physically; the loan on the credit card is just like a Personal Loan, which needs to be paid by the bank, once you contact them for the same. The Cash Withdrawal calls for the higher rate of interest and goes up to 30%, while the loan on the credit card, usually range from 15% to 20%.

So, what’s your choice between Personal Loans and Credit Card Loans? Want to go deeper into many other details, before making a choice? Here, we go!

Personal Loans versus Credit Card Loans

Both are the unsecured loan types, and thus they don’t require any collateral at all. But, still, there are lots of differences between the both. Take a look:

• Comparison on how to avail loan: To avail a Loan on Credit Card, you need a Credit Card. This credit card is issued by the bank, and in case you don’t have the credit card, no option of any loan on the name of Credit card can be availed. While, when you talk about the Personal Loans, you just need to approach the bank, either online or directly, and you have the chances that you will be sanctioned a loan.

The Verdict: The Personal Loan is the sole winner

• Comparison on the availability of Loans: The Credit Card Loans can only be availed through the bank, of which the credit card belongs to. You just can’t have the credit card of XVY Bank and opt for the Credit Card Loan through ASD Bank. While, in the case of Personal loans, there’s no such restriction. Even if you don’t have a bank account in the bank, you made a choice to opt for a loan; you are eligible to get a loan from the concerned bank.

The Verdict: The Personal Loan is the sole winner

• Comparison on which one is the quicker: The Credit Card Loans are the fastest loan in the market, while the Personal Loans comes as the second fastest. In fact, the Credit Card Loans always act as a pre-approved Loans, in the form of the Credit Limit, while to avail the Personal Loans, you need to apply to the banks, in most of the cases. However, there are some situations, when you are pre-approved for your personal loans.

The Verdict: The Credit Card Loan is the sole winner

• Comparison on Documentation Required: The Documentation required in case of the Credit Card Loans is null, while there are certain documents, which are required in the case of Personal Loans. In case of Personal Loans, the documents in the form of Salary Slips, etc have to be furnished to establish your repayment capability in front of the bank, while, there’s no need to furnish any documents of any kind for a credit card loan.

The Verdict: The Credit Card Loan is the sole winner

• Comparison on Borrowing Limit: The borrowing limit is the next point of consideration. With the Credit Cards, you can borrow, even a small amount, as low as around INR 3000, but with the Personal Loans, there’s a minimum Loan Amount, which the banks have decided, and in most cases, it is seen as being fixed at INR 50K. However, the Credit Card Loan has a particular higher limit, which is way too below than the one, which can be offered under the Personal Loan plans.

The Verdict: The Credit Card Loan and Personal Loans are the joint winners

• Comparison on Loan Tenure: Credit Card Loans are available for shorter tenure, while the Personal Loans are available for the longer duration. The shorter loan tenure of the credit card allows people to compensate for their shorter need with the Credit Cards, however, with Personal Loans, this task cannot be done.

The Verdict: The Credit Card Loan is the sole winner

• Comparison on Rate of Interest: The key difference between credit card loans and personal loans is the rate of interest. While, the rate of interest in case of Credit Card is usually higher as compared to the Personal Loans, there’s much saving, which you can do, in case, you opt for the Personal Loans, instead of Credit Card Loans.

The Verdict: The Personal Loan is the sole winner

• Comparison on Negotiation on Rate of Interest: Another difference between the both is, in case of Personal Loans, you can negotiate on your rate of interest, while the Credit Card rate of interest is fixed and there’s no negotiation possible, at all.

The Verdict: The Personal Loan is the sole winner

• Comparison on Prepayment: When it comes to the prepayment option, there are several banks, which don’t charge any prepayment penalty on Personal Loans, while the credit cards attract a huge prepayment penalty, which is generally around 3%. Thus the Personal Loans allows the early relief from the burden of loans, while the credit card loans allow so, but you need to pay a certain penalty to get such a relief.

The Verdict: The Personal Loan is the sole winner

• Comparison on Benefits and Rewards: The credit Cards come with lots of benefits and rewards, while the Personal Loans are just a responsibility, which needs to be paid well on time.

The Verdict: The Credit Card Loan is the sole winner

• Comparison on Processing Fee: When it comes to the processing fees, both the Personal Loans and Credit Card Loans usually charge a processing fee of around 1%. However, you need to cross check this processing fee, from the bank concerned.

The Verdict: The Credit Card Loan and Personal Loans are the joint winners

Start accumulating emergency funds to handle emergency situations

In an effort to keep a safe distance from all these troubles of getting loans, better keep adding funds in your emergency funds, to make yourself better equipped to handle any emergency conditions. It is being said that you must have either three of salary or 6 months of expenses, with you as an emergency fund. The emergency funds allow you to meet an instant needs and demands, especially to incur medical bills, which comes uninvited and all of a sudden. Keep a balance of what you earn, and how much you spend on. Either adjust with, what you have or else try increasing your income through various other means of earning. Dreams must be seen, but you must realize that there’s a difference between the dream and the reality. Help yourself by turning your dream into a reality with no burden of Loan.

Get prepared very well

There are several credit cards available in the market, which comes with different features and different limits. In order to better prepare yourself to handle the emergency situation, consider opting for a good limit credit card, and try improving the CIBIL Score with the regular payment of all Dues and EMIs. With the higher limit credit cards, you are offering yourself a chance to gather some good loan option through credit cards, while by collecting credit score for yourself, it will be helping you in your approval for Personal Loans as well as all other types of loans.

Conclusion

After comparing the loans, their downsides and their USPs, arriving at a concrete decision isn’t possible. In fact, which loan among Personal loan or the Credit Card Loan to go for, depends on the particular choice? It depends on the requirement in different scenarios. Take an example of two scenarios:

Ramesh needs to cover his tuition fees for the abroad studies and the quantum of loan, which he needs for the purpose is around 10 lacs. Since the Credit Card Loans cannot fulfill this need of such a high loan requirement; he decided to opt for the Personal Loans.

In another scenario, he is in the shortage of around 40000 INR, to meet his wedding costs; he went for the Credit Card Loans as no bank is ready to offer him the Personal Loan of INR 40K.

In fact, the choice among the both is purely dependent on the scenario, you are in. There is no clear-cut choice among Personal Loan and a credit card loan and thus, it depends on you to make a choice among both. Understand your loan requirement, your cash inflow in the future and figure out after a thorough research on both, the Personal Loans and Credit Card Loans, before arriving at a conclusion, Analyze your situation, your loan requirements, your comfort zone, your preferences and only then make a choice for which Loan type, you should go for!