What is your action plan when you are in grave need of credit? You may either avail a personal loan or borrow money using your credit card. Both these options allow you to avail credit in need.
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But you need to understand how both of these works before availing a loan using these financial instruments. Let’s try to understand which kind of loan is the right choice for your unique circumstance:
Personal Loan Vs Credit Card:
Personal loan and a credit card are two convenient options to avail easy credit when in urgent need of money. Sometimes people often confuse the two to be same. But in reality, there are some major differences between the two. Let’s look into some of their differences:
- Documentation: You need to go through a proper procedure to apply for a personal loan. The loan procedure and its disbursal require extensive documentation and about a week time for sanctioning. Whereas, loans on credit cards are known as ‘cash advance’. A Cash advance can be availed by using credit cards for making payments. However, credit cards have a credit limit thus restricting you to avail only up to a specific amount.
- Interest Rate: The interest rate is the key factor one must consider while availing a loan. The rate of interest on a personal loan is 10.5% onwards while credit card loans offer much lower interest rates of 10 to 18%. Additionally, a credit card loan can be availed at flat interest rate whereas personal loan is available with reducing balance rates.
- Unsecured Loan: Both are unsecured loans. Both can be availed without any collateral security.
- Tenure: Credit cards loans are taken for very short tenure whereas personal loans are availed for a slightly longer tenure. The cash availed through credit card must be repaid at the end of the month. The personal loan repayment tenure ranges from 2 years to 5 years.
- Loan Amount: A credit card loan is a better option when you need a small amount of money while personal loans are short term unsecured loans which you can avail to meet big expenses.
Comparing both these loans will give you an idea about how and when to avail these loans. If you understand your requirement then it will be easier for you to make the right choice.
See Also: Personal Loan In Bangalore
When to Buy Via Personal Loan?
In some cases, personal loan works better than the credit cards payments. When you need a lump sum amount and wish to repay it over a fixed tenure than personal loan should be your go-to option. Personal loans are better options for large expenses like financing wedding, vacations, emergency business cash requirements or cash required for medical expenses. Listed below are some scenarios in which you can avail personal loan:
- When you need two to 10 years to repay the amount you borrowed
- When you need a higher loan amount
- When your credit card interest rate is higher than the personal loan interest rate
- When you need to consolidate high-interest debt and cannot qualify for 0% APR credit card
When to Buy Via Credit Card?
Credit cards are a convenient option for small expenses or needs that can be paid off relatively quickly. You can use a credit card to pay the bills and later repay your bank at the end of your billing cycle. You can buy through your credit card when:
- You can guarantee to pay off your balance at the end of the month and minimize the interest payment.
- If you need the flexibility of paying the minimum amount or the total outstanding amount as per your convenience
- To improve your credit score
- If you do not qualify for a personal loan
See Also: How Can I Get a Quick Loan?
Advantages and Disadvantages of Personal Loan:
- A Personal loan can be put to any use. you do not need to mention the end use of the money to the bank unlike other loans
- Personal loans work better if you need debt consolidation especially if you can avail a lower interest rate
- These are unsecured loans that can be availed without any collateral
- You can apply for an online personal loan and avail credit quickly and conveniently
- You will have a fixed payment schedule that you have to adhere to
- You need an excellent credit score to qualify for these loans
- The rate of interest is generally higher for personal loans
Advantages and Disadvantages of Credit Card:
- You can avail credit card whenever required from your bank. You can use it only when you require excessive funds to meet your short-term requirements
- Credit cards are easy to qualify for.
- Credit cards are also given to individuals with no credit score. such individuals can use a credit card to build a credit score
- Banks often pre-approved credit cards for eligible customers. You may also apply for a credit card through your net banking account
- Some balance transfer credit card charges 0% interest making it easier to consolidate debt.
See Also: Immediate Cash Loans in India
- The interest charges on credit card may accumulate and lead you to a debt trap if you are not able to repay the debt on time
- Credit card involves charges like annual fee, over the limit fee and late fees.
- You need a good credit score to qualify for the best rewards credit cards
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