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Credit Card Loan Vs Personal Loan: Know the Differences & Benefits
Posted on Thursday, August 1st, 2024 | By IndusInd Bank
Consumers face several choices when they need to borrow money. The most commonly used options include credit card loans and personal loans. Both loans provide funds but differ in features and benefits. Understanding the differences between credit card loans and personal loans can help you make an informed financial decision. This knowledge will also ensure that the financial product you choose aligns with your needs and circumstances.
This blog compares credit card loans and personal loans on various parameters, including documentation, interest rates, and loan terms.
Overview
Personal Loan:
A personal loan is an unsecured financial loan people may use for several reasons. These include debt consolidation, big purchases, vacations, and medical expenses. Personal loans have high interest rates because they are unsecured.
Credit Card Loan:
A credit card loan is a pre-approved loan that does not require paperwork, making it the quickest way to get unsecured credit. This loan uses the unused portion of your credit card limit as collateral and differs from cash withdrawals.
Credit Card Loan vs. Personal Loan: Key Differences
Factor | Personal Loan | Credit Card Loan |
Approval Process | May take days to process | Quick approvals |
Interest Rates | 10.49% reducing balance rates: Interest Component decreases as the principal ispaid. | Higher rate as compared to personal loan: Interest on credit card loan is calculated on the initial loan amount for the entire duration. |
Collateral | Unsecured (no collateral required) | Unsecured (no collateral required) |
Loan Tenure | Suitable for long repayment tenure | Suitable for shorter repayment tenure |
Loan Amount | Suitable for substantial amounts | Suitable for smaller amounts |
Record- Keeping | Documentation required | Minimal to no documentation required |
When Should One Use Personal Loans?
Personal loans are better suited for large-ticket purchases. Explained below are some situations where a personal loan might be right:
- A personal loan is an option one can consider during unforeseen medical costs that exceed medical insurance limits. These are convenient for handling medical emergencies despite their high rates.
- Nowadays, it is possible to merge several loans by applying for a personal loan. It enables you to combine all debts into a single loan and repay more conveniently.
- Individuals who are getting married or planning to organise a religious or cultural event may take personal loans.
You can also use a Personal Loan calculator to get an idea of monthly payments and overall interest should you take a personal loan. This tool provides a clear picture of your repayment schedule and total cost. It also helps you plan better and find the best loan for your needs.
Also read: How to Use Personal Loan for Career Development
When is It Okay to Use a Credit Card?
Need to buy something but lack cash? A credit card can help. It lets you buy now and pay later. This is perfect for daily needs like groceries or big purchases, like home appliances.
Using a credit card for purchases or paying bills can earn rewards or cashback. It is like getting a discount for responsible use. When you choose the right card and use it wisely, you can spend smartly and get rewarded.
Conclusion
Credit cards and personal loans both serve unique needs. Credit cards are good for small, short- term loans with quick approval and little paperwork. Personal loan offers more money and