What is loan against credit card?
Credit cards have made our lives easy. For instance, there could be months during which your budget crossed limits, or unexpected expenses or an emergency situation. Credit cards help deal with such circumstances. If credit cards are used efficiently, they can be beneficial.
What if you can take a loan against credit card? Yes, loan against credit cards are offered by many banks at different interest rates.
The major concern while taking a loan against credit card is the speed involved in getting it sanctioned. Loan against credit card requires no documentation and proves to be one of the quickest and easiest ways to raise funds. Card holders can apply for loans which are pre-approved instantly. Leading banks like HDFC, ICICI, and Citibank offer loan against credit cards.
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See Also: Should You Take Credit Card Against Fixed Deposit?
What is loan against credit card?
Things to know while applying for a loan against credit card:
- Inconsistent payments: Being an unsecured loan, loan against credit card requires a clean credit history. Late payments can affect your eligibility. Make timely payments to get loan sanctioned.
- Loan defaults: Defaulting on credit card and loan repayments impacts credit score. While credit card defaults affect credit score of the card holder to an extent, loan defaults cause severe damage to credit score. This is especially true in the case of home loan defaults.
- Tenure: Loan against credit card offers flexible tenure. The cardholder chooses the repayment tenure. Banks offer a maximum tenure up to 2 years for this category of loans. However, some banks also offer loans with tenure over 2 years.
- Processing charges: Processing charges vary across banks in the range of 1-2%.
- Interest rates: Interest rates are similar to normal credit card rates. If the loan amount is 65% of your credit limit, then normal credit card interest rates are charged on the remaining 35%. If you fail to repay the outstanding amount within the interest free period, then an annual interest of 35% is charged. Maintaining a good credit score helps enjoy lower interest rate on the loan.
- Pre-closure of loan: Cardholders can pre-close their loan. This might involve additional charges as determined by the card issuer.
Eligibility to get loan against credit card
- You must be an existing credit card holder to avail the loan. On the hand, some banks approve new as well as existing customers.
- A credit card account is mandatory to avail this loan.
- A good credit history. Being an unsecured loan, the only way for a bank to ensure repayment is by checking the credit repayment history of the customer. Hence a good credit score is a mandatory criterion.
- Improved income levels help customers upgrade credit card categories, thereby increasing the loan eligibility.
Documents required for loan against credit card
Loan against credit card requires no documentation. This is because a credit card account is mandatory for getting the loan. While applying for a credit card; submit all the required documents. Banks use these documents to sanction the loan. While you are applying for a credit card, you must submit the following documents:
- Address proof (passport, electricity bill)
- Identity proof (Pan card, aadhaar card)
- Passport size photographs
- Salary slip and office ID in case of salaried employees
- Income tax returns and pan card copy in case of self employed individuals.
How to apply for a loan against credit card?
Apply for a loan online by visiting the bank’s website or offline by going to the nearest bank branch. Once the loan is sanctioned, the amount gets disbursed to your bank account.
Advantages of loan against credit card
- No documentation
- Instant money disbursal
- Lower interest rates in case of good credit profile.
- Easy application process
- Lower processing fees.
- Flexible loan tenures.
See Also: 10 Strong Reasons to Use a Credit Card
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