When it comes to personal financing, there are several funding options to choose from. But the most popular financing options are personal loans and credit card loans. Personal loans are unsecured instant loans that can be availed easily through a loan app. Credit cards are plastic cards that provide you with instant financing to meet your financial goals. Both these financial tools are very different and they serve different purposes. Depending on your requirements you can select either of the two.
Personal loans are best for long-term borrowing while credit cards are best for short-term financing needs. Also, personal loans offer high-value financing while credit cards are best for small-ticket financing. Credit cards are revolving debt, they do not have a fixed tenure but personal loans come with a fixed tenure. You can use the personal loan amount in cash, but credit cards are best for online transactions and payments, not for cash withdrawals. Thus, there are a few stark differences between these two financing options. Knowing these differences will help you make a better and more informed decision.
Read on to discover the differences between personal loans and credit cards.
What is a Personal Loan?
A personal loan is an unsecured loan that you can avail against simple eligibility and minimal documentation. Today, availing a personal loan is much easier with the advent of loan apps.
You can simply download a loan app and apply for an instant loan online. Once you meet all the eligibility criteria and furnish the documents correctly, the lender will disburse the loan amount directly into your account within 24 to 48 hours.
You can use this loan amount in any way you deem fit. Be it cash withdrawals, merchant payments or online transactions, a personal loan is perfect for all. Repayment is also flexible and easy with equated monthly instalments.
What is a Credit Card Loan?
A credit card is a convenient financing tool that comes to your aid for financing your purchases. It is best suited for small-ticket purchases that you can repay before the due date. A credit card does not charge any interest if you pay the bill before the due date. But if you opt for the EMI option on the credit card or pay only the minimum amount, then the interest incurred is very high. Credit card companies often offer you reward points, discounts and other benefits, but there are a few things you must keep in mind while using a credit card.
Firstly, know your maximum credit card limit and do not exceed 30% of this limit. Secondly, do not withdraw cash using your credit card. Thirdly, always pay your total credit card bill before the due date.
What are the Differences between a Personal Loan and a Credit Card Loan?
The primary points of differences between an instant loan and a credit card loan are cited below:
- Amount of financing
For eligible borrowers availing personal loan financing, the total loan amount available can range from Rs. 25,000 to Rs.2 crore. This can be suitably used for a host of purposes that the borrower deems fit and suitable for meeting high-value financing needs. Contrarily, the limit on credit cards is often low. It can range from Rs. 10,000 to Rs. 1 lakh.
2. Repayment flexibility
Credit card loans are revolving debt tools which means you can repay the debt and avail more financing as and when needed. The repayment can go on and on for months or even years. In contrast, personal loans come with a fixed tenure. You can choose a tenure ranging from 6 months to 60 months and you must repay the loan amount in full within this tenure.
3. Interest rate applicability
The interest rate levied on personal loans is set affordably, which makes them easily accessible to borrowers across income segments. Credit cards do not charge any interest if you repay the amount before the due date, but if you opt for EMI on the credit card, then the interest rate is very high.
4. Consequence on one’s credit profile
Personal loans bring up a great opportunity for building your credit profile if the borrower sticks to the repayment schedule accurately. Credit card loans, however, indicate unplanned borrowing habits and are not much appreciated from the credit profile-building viewpoint.
With this detailed understanding between an instant loan and a credit card loan, you can easily pick the best financing option that will suit your financing needs. Note that both of these are of unsecured nature, but a personal loan clearly bears better perks than a credit card loan.
Some perks that land in favour of a personal loan include its easy availability, convenient repayments and high affordability. You must check the benefits and downsides of both these loan options before proceeding with your financing application.