When it comes to borrowing money, there are a variety of options available to you. Two popular options are credit card loans and personal loans. Both have their own set of advantages and disadvantages, and the right choice for you will depend on your specific financial situation and needs. When deciding between a credit card loan vs personal loan, it's important to consider factors such as interest rates, repayment terms, and credit score requirements.
Credit card loans are typically easier to obtain, but they often come with higher interest rates. Personal loans, on the other hand, may have lower interest rates, but they may be more difficult to qualify for. It's important to carefully consider both options and determine which one is the best fit for you.
A credit card is used to make purchases which can be paid later. A credit card loan is a pre-approved loan offered by the issuer whose credit card you already use and is based on the existing credit limit that has been allocated to you.
A personal loan is an unsecured loan that can be used for diverse purposes like higher education, buying an appliance, sponsoring your vacation, paying medical bills, funding your vacation, etc. It is easy to get and comes with a flexible repayment tenure that often ranges from 12 to 60 months.
Now that you know the high-level definitions of each, let us take a look at the key differences between a personal loan vs a credit card loan.
When we compare a personal loan vs credit card for debt consolidation, a personal loan is generally a better option as it typically offers a lower interest rate and a fixed repayment term, making it easier to manage and pay off the debt.
Note: The table is just a suggestion and may not cover all aspects of Credit Card Loan Vs Personal Loan.
As you can see, in the comparison of credit card loans vs personal loans - there is no clear winner. A credit card allows you to pay bills, purchase items, and pay for them later. On the other hand, if you require a larger amount, then a personal loan is the right way to go. Since both are unsecured loans, personal loans come with a slightly higher rate of interest. However, they also come with a longer repayment tenor that helps keep your monthly EMI manageable.
‘Better’ is defined by your own specific requirements. If your need is of a higher amount, then a personal loan is better. If your need for cash is immediate and you can not wait even a few days, then a credit card loan may be right for you.
If your need is of an amount in the range of ₹25K to ₹2.5L and it is urgent, then a credit card loan might be the apt choice for you. It has a reasonable rate of interest that will not pinch you too much. However, do note that the repayment window is usually low and you must be in a position to pay your EMIs on time to avoid late charges and other penalties.
A credit card loan is a pre-approved loan that requires no formal application process or additional documents to support it. It is almost instantly approved and immediately disbursed making it one of the fastest types of credit products in the market. On the other hand, personal loans take more time comparatively and are taken for much larger amounts that can be conveniently repaid over the next 4-5 years.
Compared to a credit card, a personal loan usually has a higher interest rate and fixed repayment schedule, which can make it less flexible and more expensive. Additionally, taking out a personal loan can have a negative impact on your credit score if you fail to make payments or default on the loan, whereas using a credit card responsibly can help you build or maintain your credit score.
One advantage of a credit card over a personal loan is the flexibility to borrow and repay as needed, with no set repayment schedule. This can be useful for managing unexpected expenses or short-term borrowing needs.
A personal loan is generally better for credit score as it can improve credit mix and diversification of credit, whereas credit card usage can result in a higher credit utilization ratio, which can negatively impact credit score.