Many situations in life incur unexpected expenditure. Be it a medical emergency or buying a big-ticket purchase, there are several instances where we require instant cash. One of the most popular ways to meet this requirement is to apply for a loan.
In this article, we will attempt to answer the question: what kind of a loan should you go for, a credit card loan or a personal loan? Both these loans have unique features and can be availed for a variety of reasons. Let’s take a look at what these are all about and how are these two different from each other.
Credit Card Loans vs. Personal Loans
What are credit card loans?
A credit card loan is essentially the money you borrow when you use your credit card. When you use a credit card, the issuer (your bank) loans you that money, which has to be repaid after a fixed amount of time. After this grace period ends, a certain amount of interest is added to the payment as well. Credit cards are one of the most widely used loan instruments all over the world. People use them for managing daily expenditures and making all kinds of purchases.
It is important to note that credit card loans can be unsecured or secured. Unsecured credit card loans are offered as per an individual’s creditworthiness, whereas banks provide secured credit card loans in exchange for an equivalent amount of security.
While using a credit card can help customers earn rewards points and make them eligible for exclusive cash-backs, many customers avoid using them owing to the high interest rates, recurring fees, high approval requirements, variable interest rates, short repayment tenures.
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What are personal loans?
Personal loans are loans borrowed from a bank or lenders, like PaySense, for different kinds of personal uses and are repayable in smaller monthly installments. These loans can be used as per the user’s requirement and are not purpose-specific like many other loans.
Unsecured personal loans can be used for various purposes, ranging from financing a big purchase or handling medical emergencies to renovating homes or clearing multiple debts. The most common reasons for borrowing personal loans are making unexpected expenses and to fulfill household financial obligations. Instant personal loans from PaySense are feature-rich and offer conveniences such as flexible repayment options, lower-interest rates, zero collateral and no limitations on the usage of the borrowed amounts.
Personal loans come with a few merits and demerits as well. The advantages include multipurpose usage, adequate loan amount approvals, quick processing, no security requirements, simple documentation, and flexible terms. On the other hand, since the loan is extended without any security or collateral, the interest rate tends to be higher than that of secured loans.
Credit Card Loan vs. Personal Loan – Which one should you choose?
While both of these loans might look similar at first, but they do differ a lot. Let’s have a look at the critical differences between them:
- Application Process – Credit cards are availed from your banks and other financial institutions. You can contact your bank and get the card issued within a few days. Personal loans, on the other hand, can be availed instantly through digital lending platforms, like PaySense, and you can get the loan amount within 3-5 working days.
- Repayment tenures – Credit card loans have a monthly revolving repayment schedule. This allows you a grace period of a month to repay before the amount attracts any interest. You can reuse this credit line again and again as per your requirement. However, personal loans have set repayment tenure, and instead of repaying the entire amount in one go, it is spread across several months. At PaySense, for example, loan repayment tenures vary between 3 and 24 months.
- Interest rates – Credit card loans have rising interest rates that increase with the delay in repayment after the grace period. These are comparatively higher than most of the other loans as well. Personal loans have a fixed interest rate, which means that the EMI amount remains consistent throughout the loan tenure.
- Disbursement – Credit cards are used to directly pay a bill or make an online payment, and the bank/card issuer pays the amount at the very same moment. The personal loan amount, however, is disbursed the borrower’s bank account directly.
- Borrowing limit – Personal loans have a maximum credit limit based on the credit history and other important factors. Credit cards also have a maximum credit line based on the borrower’s banking details and credit score.
Based on your requirement and the repayment tenure, you may choose between going for a credit card loan or a personal loan. While both the options are equally adept at helping you with your financial obligations, personal loans offer more fiscal prudence and flexibility as compared to credit card loans.
As more online lenders provide personal loans for a small amount as well, customers are beginning to apply for instant personal loans even for making small purchases. To know more about how you can apply for an online personal loan at PaySense, please get in touch with us.
Shivam is a passionate content writer with Masters in journalism. A mutiple-award-winning writer, he brings over a decade of experience as a BFSI writer. In fact, he himself is known in his circle for sound financial advice. A writer by day and a reader by night, Shivam enjoys researching and writing on various financial topics, including credit, stock market, crypto, taxes etc. When he is not spending his time penning down an informative article or opinion, he can be found playing with his kids or collecting stamps.
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