Credit Card Loan Vs Personal Loan: Know the Differences & Benefits

Posted on Thursday, August 1st, 2024 | By IndusInd Bank

Loans are a crucial part of financial planning, helping individuals manage expenses, emergencies, and lifestyle upgrades. However, choosing the right type of loan can be confusing. Credit card loan and personal loan both options provide quick access to funds but differ in terms of eligibility, interest rates, repayment terms, and flexibility.

This guide will help you understand the key differences and benefits of credit card loans vs personal loans so that you can make an informed financial decision.

What is a Credit Card Loan?

A credit card loan is a pre-approved loan that allows you to borrow money against your existing credit card limit. It is offered by banks and financial institutions to cardholders with a good credit history.

Features of a Credit Card Loan

• Instant Loan Approval – Since you already have a credit card, the bank does not require extensive verification.
• No Additional Documentation – Unlike personal loans, no extra paperwork is needed.
• Fixed Interest Rate – The interest rate is usually lower than the revolving credit card interest, but higher than personal loans.
• Flexible Repayment Tenure – Repayment terms generally range from 3 months to 5 years, depending on the bank.
• No Impact on Credit Utilization – The loan amount is treated separately from your credit card spending limit.
• Available to Select Cardholders – Not everyone can get a credit card loan; it depends on the bank’s discretion and your creditworthiness.

What is a Personal Loan?

A personal loan is an unsecured loan provided by banks, NBFCs, or fintech lenders. It can be used for any purpose, such as travel, medical emergencies, weddings, or debt consolidation.

Features of a Personal Loan

• No Collateral Required – Unlike home or car loans, personal loans do not require security.
• Higher Loan Amounts – You can borrow amounts ranging from ₹50,000 to ₹5lakhs, depending on your credit profile.
• Lower Interest Rates – Generally, personal loans have lower interest rates compared to credit card loans.
• Longer Repayment Tenure – You can repay the loan in 12 to 60 months (1 to 5 years).
• EMI-based Repayment – Fixed monthly EMIs make it easier to plan finances.
• Available to Salaried & Self-Employed Individuals – Loan eligibility depends on income stability, employment status, and CIBIL score.

Credit Card Loan vs. Personal Loan: Key Differences

When to Use a Personal Loan?

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 study abroad.

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.

Also read: How to Use Personal Loan for Career Development

When to Use a Credit Card Loan?

A credit card loan is ideal when you need quick funds for short-term emergencies, have a limited borrowing requirement (small loan amounts), or if you’re getting a low-interest rate offer from the bank.

However, since credit card loans carry higher interest rates, they are not ideal for large expenses or long-term financing.

How to Apply for a Personal Loan?

Applying for a personal loan is a straightforward process.

• Check Your Eligibility – Visit your bank’s website or a loan aggregator platform to check eligibility.
• Compare Interest Rates – Different lenders offer varying rates. Choose the best deal.
• Submit Your Application – Fill out the online or offline application form.
• Provide Required Documents – Generally includes:
  • PAN & Aadhaar card
  • Salary slips or income proof
  • Bank statements (last 3-6 months)
• Loan Approval & Disbursement – If approved, the loan amount is credited to your bank account within 24-48 hours.

Leading lenders like IndusInd Bank offer 100% digital instant personal loan with no requirement of income proof or other physical documents.

How to Apply for a Credit Card Loan?

Since a credit card loan is pre-approved, applying is even simpler.

• Check Your Eligibility – Log in to your net banking account or check with customer support.
• Apply via Net Banking or App – Banks provide an instant loan option in credit card sections.
• Choose the Loan Amount & Tenure – The bank will display the available loan amount.
• Confirm and Accept the Offer – Once confirmed, the loan amount is transferred directly to your account.
• Repay as Per EMI Schedule – The loan is added to your monthly credit card bill as EMIs.

Summing Up

Both credit card loans and personal loans offer financial flexibility, but serve different needs.

• A credit card loan is suitable for quick, short-term borrowing.
• A personal loan is better for long-term financial needs with lower interest rates.

Before choosing, compare interest rates, repayment tenure, and loan amount to select the option that best fits your financial situation.