Credit card loan or Personal loan – Which one is better?
This depends on your personal needs. Making payments by credit cards, which you typically have to pay back within 30-40 days, cannot strictly be called ‘loans’. It is just a form of deferred payment for a product or service you buy, although you do get a decent window to pay off this debt, and no interest is charged if you make your minimum payment when the amount becomes due. If you do not make the minimum payment on or before the due date, of course, heavy interest rates kick in. One of the main differences, apart from the interest rates, is the documentation process. Applying for personal loans requires a lot more documents than applying for loan on credit card. However, applying for personal loans has become easier, in fact, it is just a few taps on your phone away!
How Credit Card Loans Work?
Credit cards loans are probably the most expensive form of funds, outside, of course, the disorganized financing sector run by loan sharks, and interest rates can be a lot higher than you desire. When your credit card’s payment becomes due, you are bound to make a minimum payment. If you do not pay this minimum amount in full, you can incur heavy interest rates. Furthermore, interest rates are calculated on the average daily balance of the month, not the ending balance. Making payments by a credit card is a kind of “revolving” debt. You have a spend-limit on your credit card, depending on your credit score. A credit card loan is an unsecured loan, meaning you do not have to provide any collateral security. Credit cards are best used for daily expenses or monthly bills. You could of course use your debit card for the same purpose, but a credit card has the benefit of free short-term funds. A lot of credit cards offer incentives such as travel rewards and trip insurance.
How Personal Loans Work?
Personal loans come with a much lower interest rate than a credit card, especially if your credit rating is good. They are good for long-term financing, from as short as 3 months to as long as 5 years, and are to be repaid in fixed installments, known as Equated Monthly Installments (EMI). These installments consist partly of interest and partly of the principal amount of your loan. Personal loans are ideal for financing small businesses or for consolidating credit card and any other debts you may have.
Credit Card Loan or Personal Loan: Which one is better?
Credit cards loan or personal loan can be used in combination to consolidate multiple debts and overdue payments into a single payment. While credit cards seem like a lucrative option, general spending behaviour can lead you towards a debt trap where you get stuck in the cycle of revolving debt. Furthermore, missing even a single payment of your credit card loan may incur very high interest rates. So, if you are looking for quick cash to manage an emergency or a one-time heavy expense, then personal loans are your best options. In fact, personal loans can help you deal with your overdue pending payments of credit card as well.
Apply for Loans of upto ₹5 Lakhs easily using your phone or laptop, and pay back on low EMIs