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Loan on Credit Card - Features, Eligibility and More

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Loan on Credit Card - Features, Eligibility and More

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Getting a loan on a credit card is a very useful feature that most banks offer on their credit cards these days. By using this feature, you can gain access to cash instantly and satisfy your emergency fund requirements. It is similar to a personal loan, albeit with more relaxed eligibility criteria and a much simpler application and approval process. 

Wish to know more about this unique feature? Continue reading to find out all about it, including how to get a loan on a credit card. 

What is a loan on a credit card?

When you apply for a credit card, you get a certain credit limit allotted to you. You can use your card to make payments up to this specified credit limit. 

In addition, you can use your available credit limit to get a lump sum amount as a loan. Once the bank approves your request for a loan against your credit card, the amount you opted for will instantly be credited to your account. This loan can be repaid through Equated Monthly Installments (EMIs) over a specified tenure. The interest rate for loans on a credit card may vary depending on the bank and other factors such as your credit score and income levels. 

Note: The bank will temporarily block your credit limit by the amount of loan that you’ve opted for. And the bank will gradually release the block on your credit limit with each EMI payment that you make. 

How does a loan on a credit card work?

Here’s an example to help you understand this concept better. 

Assume that you have a credit card with a total credit limit of Rs. 2 lakhs. Now, you wish to avail a loan on your credit card to the tune of Rs. 1.5 lakhs for 12 months.  Say that the bank charges an interest rate on a loan at 15% per annum. 

Once the loan request you place with the bank is approved, you will receive the funds in your bank account. Simultaneously, your available credit limit will reduce to Rs. 50,000 from Rs. 2 lakhs. 

To repay this loan, you must pay an EMI of Rs. 14,375 for 12 months. With every EMI payment of Rs. 14,375 that you make, the bank will gradually release the blocked credit limit by a certain amount. At the end of the 12th month, you will get your credit limit of Rs. 2 lakhs back.

Features of a loan on a credit card 

Now that you’ve gotten a fair idea of the concept of personal loan on a credit card, let’s take a look at a few of its features. 

1. Loan is pre-approved 

Loans against a credit card are pre-approved by the bank. This means that you don’t have to spend too much time filling and submitting a lengthy application and waiting for the bank’s approval. This cuts down the time it takes to process the loan significantly. 

2. Instant disbursal of funds 

Since a loan on a credit card is pre-approved, the funds are disbursed almost instantaneously to the bank account linked with your credit card. If you haven’t linked a bank account, it might take up to 24 hours or more for you to receive the funds, which is still much faster than a traditional loan. 

3. No need for any documentation 

You won’t have to submit any documentation to avail a personal loan on a credit card. Instead, all that you need to do is place a request for a loan with your credit card issuer. 

Eligibility criteria for availing loans on a credit card

To avail loans on a credit card, you must satisfy certain eligibility criteria. These criteria will vary depending on the bank with whom you possess your credit card. However, here’s a set of basic norms you must satisfy. 

  • You must possess a valid and active credit card. 
  • Your credit card must not have unpaid outstanding dues. 
  • You need to possess a long credit history and a high credit score.
  • You must be an existing customer of the bank.
  • You must have a stable and high enough income.

How to get a loan on a credit card?

Getting a personal loan on a credit card is very easy and shouldn’t take more than a few minutes. Let’s take a look at the general process that you would have to follow for the same. 

1. Online

Many banks allow you to quickly apply for a loan against your credit card by logging into your credit card account. Once you’ve logged into your credit card account, you can apply for the loan by entering the amount and the tenure. You might be asked to authenticate the request through an OTP sent to your registered mobile number. Once you place and authenticate the request, the funds will be disbursed to you instantly or within a few hours.

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2. Offline

Alternatively, you can call your credit card provider's customer care helpline and apply for a credit card loan. The customer care representative should be able to guide you through the process telephonically. 

Conclusion 

With this, you must now be aware of how to get a loan on a credit card. As you can see, availing a loan against your card is simple and can be very helpful during times of emergency. However, since credit card loans are essentially unsecured, the interest rates tend to be higher, which you should account for when using the facility. 

Frequently Asked Questions

1. Is it good to take out a loan on a credit card?

While taking a loan on a credit card may seem very advantageous at first sight, it always comes with a high-interest rate. So, it is advisable to resort to this feature only when you need funds urgently.  

2. What is the interest rate of a credit card loan?

The rate of interest on a personal loan on a credit card may vary depending on the card issuing bank. It is also based on multiple factors like your income level, credit score, repayment history, and your relationship with the bank. 

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