These two examples of unsecured loans are personal loans and credit card loans. However, they are not equivalent. Personal loans are more suited for people who need a longer repayment period than credit cards are for those who have short-term debts that can be paid off quickly. Therefore, this blog should be helpful if you are considering making a purchase and are unsure whether to use a personal loan or credit card to finance it.
Difference Between Personal Loan and Credit Card Loan
When To Get A Personal Loan
A personal loan can be obtained without any security or collateral because it is an unsecured loan. Here are some circumstances in which you ought to apply for a personal loan:
1. During Serious Occasions
In some circumstances, you might not have much time left to plan your funds for significant life events. Considering a personal loan in these situations will be advantageous due to the reduced interest rate and flexible payback terms.
2. Credit Card Debt Consolidation
A personal loan may have a lower interest rate than a credit card, however it is not extremely low. You can apply for a personal loan to pay off your credit card debt if you have several of them. A single loan with a lower interest rate will then be due. Additionally, your credit rating will rise as a result.
3. Renovating your house
You might not have enough money to pay the costs associated with remodelling your property. If you need money for such purposes, you can get a personal loan. As a result, your property will be worth more when it is time to sell.
Benefit of Taking Personal Loan
The following advantages of a personal loan are worth mentioning:
Minimal requirements for qualifying
Offers both little and large loans, from Rs. 20,000 to Rs. 40 lakh for debt reduction.
Flexible payback plans with a maximum of seven years
Personal loans are widely available and simple to obtain.
Drawback of a Personal Loan
Consider the following disadvantages before applying for a personal loan:
Processing fees for personal loans (and maybe additional fees) raise the overall cost of the loan.
There may be a number of documentation that certain lenders want you to give.
Loan approval is heavily influenced by your credit score.
Heavy penalties may be imposed for missed EMI payments.
Compared to secured loans, such as mortgage loans, personal loans have higher interest rates.
When To Get A Credit Card Loan
You may be able to check with your lender and obtain a loan against your credit card if you have one and need money immediately.
1. Cover medical expenses
A day in the hospital might cost you hundreds of dollars in medical expenses. You can use a credit card loan to pay off your debts if you're short on cash.
2. Pay for unexpected costs
A credit card loan could assist you in covering short-term emergency financial needs, whether you have quick obligations to cover or large utility bills that need to be paid in one single amount.
3. When a smaller amount of immediate funds is required
Say you have an urgent need for Rs. 15,000. A credit card loan might be useful in this circumstance. The rationale is because the loan amount is little, which makes it simpler to repay quickly and avoid paying excessive interest fees.
4. When You Cannot Get a Personal Loan
If your application for a personal loan is denied and you need money right away, you might apply for a loan against your credit card. To apply for such loans, you would need a credit card, though.
Benefit of Credit Card Loan
Several benefits are provided by credit card loans:
There is no need for additional paperwork when applying for a credit card loan using your credit card.
You can apply for a credit card loan without being present in person at the bank.
If you have good credit, you can borrow money at a favourable interest rate.
Only when you use the available funds are interest fees assessed.
Drawback of Credit Card Loan
You should be aware of the negative aspects that a credit card loan entails in addition to the positive aspects:
Typically, personal loans have a higher interest rate.
Applying for a credit card loan requires that you have a credit card.
To qualify for a loan against a credit card, a credit cardholder must be eligible and fit in the card issuer's eyes.
Personal Loan vs Credit Card Loan : Which One is Better
Conclusion
In cases of sudden circumstances where a person needs money right away, personal loans may be useful. An illustration might be medical costs or an acute need for cash in your company. Despite the fact that a credit card loan can be useful for modest bills.
The benefits and downsides of personal loans and credit card loans can be compared, then you can apply for the loan that best suits your needs. Keep in mind that paying back debt on time will help you avoid paying expensive late fees.
