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Personal Loan vs Credit Card Loan – Which One is Better?

Submitted by admin on July 4th, 2025

During a period of financial urgency, two types of loans usually come to minds personal loans and credit card loans. Both may prove effective solutions to carrying out short term borrowing but it is paramount to know the difference before deciding to use them.

The Basics of Understanding

Personal loan- A personal loan is a form of a term loan provided by NBFCs or banks. It is not usually secured, that is to say that collateral is not required and that it is repaid in fixed installments of equal amount and over a fixed tenure.

Credit card loan in its turn is a kind of revolving credit. You can change outstanding balance to EMIs or borrow up to the credit limit. In contrast to personal loans, there is a great variety in flexibility of repayment and the interest rates.

Interest Comparison

The interest rates form a critical deciding factor. Interest rates of personal loans are usually between 10-24 percent p.a. depending upon credit score, income and the lender.

Credit card loans are however more expensive. The interest, which is 36-42 per cent multi-annual, may be imposed on you, in case you fail to make timely payments, with poor payment penalties. Although there are banks who will provide EMI repayments at reduced rates, failure to meet deadlines may be very costly.

Loan Vs EMI, What Works better?

A personal loan often makes more sense when you would require a big lumpsum sum (like in case of a medical emergency, wedding or debt consolidation). The reason is that EMIs of personal loans are fixed, and one can pay tomorrow without knowing how much to pay.

Credit card loans are in turn best suited with small purchases made on short notice. You can also be able to take advantage of the interest free portal provided you repay earlier than the due day. Credit cards EMI is convenient in the case of planned expenses and small-valued expenses.

Debt Consolidation Options

Personal loans are often preferred for debt consolidation, especially if you’re juggling multiple credit cards or loans with high interest. One single personal loan can help you close other high-interest debts and manage one EMI with a lower rate.

In contrast, using a credit card for debt consolidation is risky due to variable and higher interest charges. Unless your card offers a balance transfer at a nominal rate, it’s not the best fit.

Revolving Credit vs Term Loan

Credit card loans function on a revolving credit model—you borrow, repay, and reuse within your limit. It offers flexibility but can easily lead to overspending and debt traps.

Personal loans, being term loans, provide a structured repayment path with a start and end date. This makes budgeting and financial planning easier.

Conclusion

Both options have their place, but choosing between a personal loan and a credit card loan depends on your purpose, repayment ability, and discipline. Always compare interest rates, fees, and tenure before borrowing.