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What is a Personal Loan?
A personal loan is an unsecured loan offered by banks, NBFCs, or digital lenders to individuals for personal purposes. These loans do not require collateral and can be used for various needs such as:
- Medical emergencies
- Debt consolidation
- Home renovation
- Travel or wedding expenses
- Education
The loan amount generally ranges from ₹50,000 to ₹50 lakh, depending on your credit profile and lender policies. The tenure usually varies from 12 months to 84 months, giving borrowers flexibility in repayment.
Interest rates on personal loans in India typically start from 10.25% per annum and can go up to 24%, based on your creditworthiness, income, and relationship with the lender.
Key Features of Personal Loans
✔ Unsecured: No collateral required. ✔ Fixed Interest Rate: Usually, the interest rate remains the same throughout the tenure. ✔ Fixed EMIs: Predictable monthly payments make budgeting easier. ✔ Longer Tenure: Usually up to 7 years. ✔ Eligibility Criteria: Based on income, employment, and CIBIL score (usually 700+).
What is a Credit Card Loan?
A credit card loan is essentially a short-term loan offered against your existing credit card limit. It can be in two forms:
- Cash Advance: Withdraw cash from an ATM using your credit card.
- Loan on Card: A pre-approved loan based on your credit limit.
Credit card loans are usually offered for shorter tenures ranging from 3 months to 48 months, and the interest rate is generally higher than personal loans, ranging between 18% and 36% per annum.
Processing is quick since you already have a relationship with the credit card issuer, and many lenders offer instant approval.
Key Features of Credit Card Loans
✔ Quick Disbursal: Instant availability if you have an eligible card. ✔ No Documentation: Minimal formalities as you are already a customer. ✔ High Interest Rate: Usually higher than personal loans. ✔ Limited Loan Amount: Based on your credit card limit. ✔ Short Tenure: Mostly less than 4 years.
Personal Loan vs Credit Card Loan: Key Differences
Aspect | Personal Loan | Credit Card Loan |
Loan Amount | ₹50,000 to ₹50 lakh | Limited to credit card limit |
Interest Rate | 10% – 24% p.a. | 18% – 36% p.a. |
Tenure | 12 – 84 months | 3 – 48 months |
Processing Time | 1 hour to 48 hours | Instant |
Documentation | Basic KYC and income proof | Minimal or none |
Prepayment Charges | Usually 2% – 5% of outstanding amount | Usually not allowed or with restrictions |
Best For | Large expenses, debt consolidation | Short-term emergency cash needs |
Advantages of Personal Loans
✔ Lower Interest Rates compared to credit card loans. ✔ Higher Loan Amount suitable for big-ticket expenses. ✔ Longer Tenure makes EMIs manageable. ✔ Flexibility in repayment with prepayment options.
Disadvantages of Personal Loans
✖ Processing Time may take a few hours to 2 days. ✖ Processing Fees can range from 1% to 3% of the loan amount. ✖ Prepayment Penalties in some cases.
Advantages of Credit Card Loans
✔ Instant Approval if you have an eligible credit card. ✔ No Documentation required. ✔ Convenient for Short-Term Needs like medical emergencies or travel.
Disadvantages of Credit Card Loans
✖ High Interest Rates make them expensive if not paid on time. ✖ Lower Loan Amount limited to your credit card limit. ✖ Short Tenure can strain your monthly budget.
Which One Should You Choose in 2025?
Your choice between a personal loan and a credit card loan depends on:
1. Loan Amount
- If you need a large amount (₹1 lakh to ₹50 lakh), a personal loan is better.
- If you need a small amount instantly (₹10,000 to ₹2 lakh), a credit card loan works.
2. Repayment Capacity
- If you prefer low EMIs over a longer period, go for a personal loan.
- If you can repay quickly, a credit card loan might suffice.
3. Interest Rate Sensitivity
- If saving on interest is your priority, choose personal loans.
4. Urgency
- For instant funds, a credit card loan is the fastest option.
When to Choose a Personal Loan
- Large medical bills or home renovation
- Debt consolidation
- Wedding expenses
- Education financing
When to Choose a Credit Card Loan
- Short-term cash needs
- Emergency travel
- Minor medical emergencies
Tips to Save Money on Loans in 2025
✔ Check Your CIBIL Score: A score above 750 can get you the best rates. ✔ Compare Multiple Lenders: Use online aggregators to compare offers. ✔ Negotiate with Banks: Existing customers can request lower rates. ✔ Avoid Minimum Payments: For credit cards, pay the full amount to avoid penalties. ✔ Prepay When Possible: Reduce interest by closing loans early.
Which is Better?
- Personal Loan is better for large amounts and long-term needs because of lower interest rates and flexible repayment options.
- Credit Card Loan is suitable for small, urgent expenses where instant access to funds is crucial, even though the cost is higher.
So, personal loans are generally more cost-effective, but if you value speed over cost, a credit card loan can work for emergencies.
