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Home Articles Personal Loan vs Credit Card: Which is Better and Why?

Personal Loan vs Credit Card: Which is Better and Why?

IndianMoney.com Research Team | Updated On Wednesday, June 19,2019, 02:42 PM

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Personal Loan vs Credit Card: Which is Better and Why?

 

 

We are all familiar with personal loans and credit cards, the most popular and commonly used loans in India. Personal loans are very popular these days. India is a big, potential market for personal loans and credit cards.

  • A personal loan, a type of unsecured loan, is availed by salaried and the self-employed to meet unplanned or emergency financial needs. No collateral is necessary for personal loans. Make sure to pay personal loan EMIs in time.
  • A credit card is an extended banking facility that allows cardholders borrow money to purchase goods and avail services. This is a go-to financial product for those who do not prefer using cash and can pay the outstanding balance within billing cycle + grace period.

Want to know more on Personal Loans? We at IndianMoney.com will make it easy for you. Just give us a missed call on 022 6181 6111 to explore our unique Free Advisory Service. IndianMoney.com is not a seller of any financial products. We only provide FREE financial advice/education to ensure that you are not misguided while buying any kind of financial products.

Personal Loan vs Credit Card: Which is Better and Why?

 

Personal loan

Credit card

Loan type

Unsecured

Unsecured

Interest rate

13-22% a year

24-36% a year

Tenure

Usually taken for a higher tenure (1-5 years)

Usually taken for a lower tenure (interest-free credit period up to 45 days)

Loan amount

The bank sanctions the loan amount on the basis of credit score and the income proof

The predefined monthly credit limit

Documentation

It requires certain documents to be furnished

It is instantly approved and granted

Repayment

Paid through monthly EMIs

Paid during the payment cycle

Merits of Personal Loans:

  • Easy to obtain when compared to other loans
  • A great recipe for debt consolidation
  • Can be availed online or offline
  • A fixed repayment schedule

See Also: Get Personal Loans in Emergency Situations

Demerits of Personal Loans

  • Difficult to obtain if you do not have lengthy credit history and a healthy credit score
  • The issuing bank levies a loan processing fee, which varies across banks.

Merits of Credit Cards

  • Instant approval with an average credit score
  • No extra costs in case of timely payments
  • Cashback and reward points
  • 0% APR on balance transfers (some credit cards offer this facility).

See Also: Personal Loan In Bangalore

Demerits of Credit Cards

  • Late payment fees, annual fees, over-the-limit fees, cash advance fees, balance transfer fees, overseas transaction fees and so on
  • High interest rates
  • Difficult to manage missed credit card payments because of a floating interest rate.

When to Use a Personal Loan?

Personal loans can be availed if:

  • You require 2-5 years to repay the loan
  • Your credit score is good and you enjoy a lower interest rate
  • You are not eligible for a 0% annual percentage rate (APR) credit card
  • You need to consolidate a high-interest debt.

When to Use a Credit Card?

Credit cards are used if:

  • You are not eligible to get a personal loan
  • You can make payments on time
  • You need the flexibility of paying just the minimum balance.

See Also: What Is A Personal Loan?

Which One Should I Choose Whether a Personal Loan or a Credit Card?

Ask yourself the following questions to make the right choice:

1. How Much Money Do I Need?

Credit cards are preferred over personal loans if you need lesser funds and vice versa.

2. How Much Time Do I Require to Make Repayments?

Avail a personal loan if you need more than a year to repay the loan. Credit cards are an ideal choice if you can repay the debt within a few months. Use a to understand and compare the cost of each option. Use the one that saves your money.

3. Do I Require Cash?

Check if you need cash. The point you must understand here is that credit card cash advances normally come with extra fees. Definitely not a good idea.

4. How Much Should I Spend on Shopping?

If you want to buy something within the given credit limit, use a credit card. On the contrary, avail a personal loan if you need more funds.

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IndianMoney.com Research Team

The research team at IndianMoney.com comprises of certified and experienced professionals who share the company's vision to make every Indian financially literate by equipping every Indian with right and unbiased advice. IndianMoney.com research team provides newsletters, articles, videos and FAQs on various financial products and concepts only to help you make wise financial decisions.

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