Credit Card Loan vs Personal Loan: Which is the Best
Submitted by admin on October 11th, 2024
When one has to choose between credit card loans and personal loans, each has pros and cons based on a specific money situation. The following will help in comparison so that you can decide which one is appropriate:
Interest Rate
Credit Card Loan: Higher interest rates usually 15% to 30% annually or more depending on the type of balance.
Personal Loan: Lower interest rates, especially for individuals who have a good credit score and can borrow at around 10% to 20%.
Verdict: Personal loans are generally more advisable if you need to raise money at a low-interest rate.
Loan Amount
Credit Card Loan: It is usually capped by your credit limit, so it is going to be lesser than your requirements.
Personal Loan: You can avail larger amounts, often ₹20 lakh and above depending upon the bank and your credibility.
Verdict: You can avail higher amounts under personal loans compared to a credit card loan.
Repayment Flexibility of a Loan
Credit Card Loan: Flexibility in repayment, but the choice to pay only the minimum is that it can trap you into a cycle.
Personal Loan: Fixed EMIs for a specific time period of 1-5 years. This can maintain the systematic payment, but offers little in terms of flexibility .
Decision: Credit card loans allow much more flexibility in your monthly payments but trap you into a cycle.
Tenure of the Loan
Credit Card Loan-Short term mostly there is no fixed tenure; therefore, the repayments get difficult if not managed properly.
Personal Loan- Tenure is fixed; usually 1-5 years so, one can prepare accordingly regarding his/her repayments.
Verdict: Long-term transactions are better with structured repayment: personal loans.
Approval Process
Credit Card Loan : The approval happens instantly provided the balance amount is available and no extra documentation is required.
Personal loan: It takes a while to get approved, and there is a process of verification in most cases, but the interest rates are really much better.
Conclusion: Credit card loans win on speed and convenience .
Impact on Credit Report
Credit card loan: This is a nasty way to hurt your credit score, because if your credit card maxes out, it can be simply very nasty.
Personal loan: Assuming you pay back your personal loan very well, because it has a fixed repayment schedule, it should improve your credit score.
Verdict: Personal loans are better in order to keep or increase your credit score.
Fees and Charges
Credit Card Loan: Annual fees, Late payment charges, and also more invisible charges
Personal Loan: Processing fees-1-2% but fewer hidden charges
Verdict: Personal loans have relatively smaller and lesser fees than credit card loans
Conclusion:
Credit Card Loan: You should opt for this loan option if you require quick, short-term borrowing and pay back the balance within less than thirty days to avoid more interest charges.
Personal Loan Selection: If one needs an amount that is a bit larger with lower interest rates, he would opt for the structured one to be repaid over a much longer period.
