What is a Loan on a Credit Card?

Posted on Wednesday, September 4th, 2024 | By IndusInd Bank

Have you ever been curious about what a loan on a credit card is and how it functions? A loan on a credit card is a financial option that allows you to borrow funds against your credit limit. This kind of loan can act as a lifesaver during financial exigencies or for planned expenses, providing you with instant funds without the requirement for additional documentation or approvals. 

The borrowed amount needs to be repaid in fixed monthly instalments as per your repayment potential over a specified period. If you need funds exceeding your existing card limit, don’t worry. Having a good credit score increases your chances of securing loan proceeds over and above your existing limit. Also, a good score makes you eligible for a loan at lower interest rates. 

Read on to understand the distinct kinds of credit card loans available in the market, and which card you should choose to avail this facility. 

Types of Credit Card Loans Available

1) Pre-Approved Loans

Usually, pre-approved loans are sanctioned against the card user’s credit card limit. When you avail a pre-approved loan, your credit card limit is temporarily blocked up to the extent of the loan proceeds sanctioned. As you repay the loan Equated Monthly Instalment (EMI), your credit limit is gradually restored. 

As mentioned above, a few credit card issuers may offer a variant of this loan, allowing you to borrow proceeds over and above your credit limit if you hold a good credit score. This flexibility can be helpful when you need additional funds beyond your available credit. 

2) No-Cost EMI Loans

Credit card issuers may offer a no-cost EMI facility on purchases of goods and services. Using this facility, you can convert your huge transactions into easy monthly instalments without bearing the interest constituent. This can be an excellent way to manage your finances and make big-ticket purchases more affordable. 

The overall cost of the product or service purchased is divided into equal EMIs, making it affordable. Note that no-cost EMI loans are best for purchasing electronics, appliances, or even travel packages, enabling you to enjoy your purchase without the stress of a lump sum payment.

3) Regular Loan EMIs with Interest

These are standard loans where you borrow a specific amount against your credit card for the purchase of a good or service, which you must repay with interest over a period. The interest rates for such loans can differ depending on the card used and your creditworthiness. While such loans on credit cards offer a straightforward way to access quick funds, it is essential to compare interest rates and terms to figure out the best deal. 

Also Read: The Role of Credit Cards in Personal Finance

Benefits of Availing a Loan against a Credit Card

Availing a loan through your credit card can endow various benefits, particularly in urgent scenarios. Here’s how it can be beneficial:

1. Instant Access to Funds

Unlike traditional loans that need days or even weeks for approval, loans against credit cards can be accessed instantly. Many banks offer pre-approved loans to specific customers who have demonstrated disciplined credit behaviour and maintain an excellent credit score, making them eligible for such deals. This eliminates the requirement for lengthy application processes, allowing you to get funds quickly. 

2. Minimal Documentation

As the financial institution already has your details, the documentation required is minimal. This saves time and helps you focus on resolving your instant needs without hassle. 

3. Loans Based on Your Credit Usage

Disciplined use of your credit card can result in higher credit limits. This, in turn, can make you eligible for a bigger loan amount when you need it. It is essentially a reward for maintaining good financial habits. 

4. Flexible Repayment Options

Loans against credit cards come with the option to repay in EMIs. You can select a repayment term that matches your financial scenario, making it simpler to manage your payments comfortably. 

5. Lower Interest Rates

The interest rate on a loan against a credit card is lower than that for regular credit card withdrawals. This can save you a considerable amount in interest charges over time. 

6. No Security Required

Unlike other loan types, you do not need to offer your house or car as collateral when borrowing against a credit card. The loan is based on your credibility and existing credit limit, making it a more accessible option than conventional loans. 

Credit Card Benefits beyond Loans

In addition to the benefit of availing pre-approved loans, credit cards come with a range of other benefits. From cashback and reward points to fuel surcharge waivers and airport lounge access, having the right credit card can support your routine spending. 

For instance, the IndusInd Bank Nexxt Credit Card offers the convenience of PoS shopping at over 10 lakh domestic merchant outlets, enabling you to buy products of your choice at EMI options with just the click of a button.

The card also offers EMI facilities for online transactions, providing high financial flexibility. Besides these financial benefits, the card also offers a range of other perks, including:

The IndusInd Bank Nexxt Credit Card is also an excellent choice for availing pre-approved loans for customers who meet the bank’s criteria. 

Ending Note

A credit card loan offers a convenient way to access funds instantly without the stress of a conventional loan application process. With options like pre-approved loans, no-cost EMIs, and regular EMIs, the process to avail funds becomes even simpler. You know what’s better? Using a credit card that offers you the benefit of these loan facilities, and also a better reward program and additional perks.

Here’s where the IndusInd Bank Nexxt Credit Card comes in. This unique financial instrument allows you to avail these loans while offering enticing benefits such as reward points, fuel surcharge waivers, and flexible EMI payment options.

So, do not delay any further; apply for an IndusInd Bank Nexxt Credit Card and leverage its holistic EMI facilities along with its rewarding features and benefits. Apply now!

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.