Banks offer the facility of credit card loans for people with a high credit score. Credit card loans are not very popular in India and in an emergency; people generally opt for personal loans.
A credit card user can also opt for credit card loans as it’s easy to avail and comes at flat interest rate, unlike personal loans which come at reducing balance rates. Being a less popular option, there are certain myths on credit card loans.
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Let’s bust the myths associated with credit card loans and try to understand how they work:
First-time credit card users often cannot distinguish between credit card loans and credit card withdrawal facility. Cash withdrawal and credit card loans are two distinct facilities offered by the banks. The main differences are the interest rates charged for credit card withdrawal facility and credit card loans.
For cash withdrawals on credit card, interest is calculated on the day, cash is withdrawn. This is opposite to credit card transactions where the user receives a free introductory period. The interest charged on using the credit card withdrawal facility is slightly higher than credit card loans.
The cash withdrawal facility limits cash that can be withdrawn and this is decided based on the overall limit of the credit card. Know that credit card balance withdrawal facility comes with a withdrawal fee as well.
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The loan on credit card works the same way as other loans. Borrowed money is repaid in monthly instalments. The EMI amount is included in your credit card bill, based on the loan tenure. In case of any missed payments on credit card loan, the bank charges a high-interest rate which is in addition to the interest you are already paying.
The rate of interest offered by the lender is a crucial factor for borrowers, while opting for a loan. Credit card loans usually come at a lower interest rate than personal loans. This is because credit card loans can be availed at flat interest rate while a personal loan is offered at reducing balance rates. In the flat interest rate method, the rate of interest is calculated on the principal amount whereas in case of reducing balance, the interest rates are calculated on the outstanding loan amount on a monthly basis.
See Also: Check Credit Score Online
The outstanding balance on your credit card can be transferred to another card, either with the same bank or some other bank. Credit card balance is usually transferred if you are not happy with the services of your bank.
The idea is to get an introductory period and a better rate of interest. The credit card balance transfer involves a certain procedure like CIBIL verification and document submission. The applicant must provide important details like credit card number, expiry date, credit card limit and the outstanding amount on the credit card. After the verification process, banks send a demand draft to transfer the outstanding balance or directly transfer the balance on the new credit card. The process takes about 10 to 15 working days.
Credit cards are generally issued to those having a high credit score and a good repayment history. These people are also eligible for credit card loans. But, in case your credit score is impacted due to late payment or some other reasons, then the chances of getting a credit card loan reduces. Credit card loans are unsecured loans which can also affect your credit score. Any late payment or default on loan payment can lead to a bad credit score.
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