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Credit Card Loan vs. Personal Loan - Which One is Better?

Published on May 27, 2020Updated on May 20, 2024

Credit Card Loan vs. Personal Loan - Which One is Better?

When in need of liquid funds, you can go either the personal loan route or pay it off with a credit card loan instead. Whichever way you choose to proceed, both avenues will make the cash accessible to you fairly instantly.

Where you can get slightly stuck is deciding on which type of loan to go for - personal loan or credit card loan.

Experts recommend taking out a credit card loan for short-term debt. On the other hand, a personal loan is more suitable for those individuals who need a longer repayment tenure to pay back the debt. Having said that, it basically boils down to the rate of interest that you will have to pay.

So be it a personal loan vs credit card loan, your initial task would be to find out the lowest cost option that can cater to your needs.

Credit Card vs. Personal Loan

Usually a loan available on a fixed rate of interest, a personal loan is sanctioned for a given tenure of between 12 and 60 months payable via equal monthly instalments or EMIs that include the principal as well as the interest component. Personal loan for salaried individuals is more easily approved than those for self-employed people.

A credit card loan, on the other hand, is generally referred to as revolving debt. This is because the borrowed amount is dependent on the funds spent on the card and the balance that is left at the end of your monthly billing cycle.

How Do Credit Cards Work?

When you are in need of small or big ticket purchases, a credit card loan is a handy and convenient way to pay for it. Your credit card can be used physically in-store or online.

It comes with a downside too. If you lose control with your credit card purchases and are unable to pay off your entire balance in full in the designated billing cycle, you will be liable to pay extremely high interest on the remaining unpaid amount. Over time, it can accumulate pushing you further into a debt trap.

The primary reason why you can end up in this situation is that credit card companies do not require you to pay off your balance all at once. You can keep using your card by just paying the ‘Minimum Amount Due’ or the ‘MAD’ which is mentioned on your credit card statement.

Must Read: Types of Unsecured Loans in India

You can keep using your card until you exhaust any remaining balance on it. However, the interest keeps accumulating. Your card’s APR or Annual Percentage Rate generally is the determining factor that decides on the rate of interest charged by the credit card issuer. With a high APR, your interest will pile up that much faster.

Hence the reason why credit card loans are also known as revolving debt. The obvious reason for that is you can kickstart with this loan type, very similar to a conventional small personal loan which in this instance is the credit limit. However, the amount borrowed is equivalent to the amount that you spend on the credit card and the amount that you are able to pay back in the subsequent billing cycle.

Most credit card loans are unsecured. Some select cards may warrant some form of security which is really rare. A secured credit card does not require collateral whereas you may have to put down a cash deposit as a form of collateral for a secure line of credit.

Credit Card Benefits:

Having said that, credit card loans do come with their set of advantages. For example,

  • A credit card can be applied for just about any time that you have the need for it without any additional documentation
  • With a good credit rating, most individuals are eligible to apply for a credit card loan
  • You do not even have to physically visit a bank in order to apply for a credit card related loan
  • Select cards also offer the option to transfer balance at times at 0% interest with a repayment tenure of anywhere between 12 to 21 months that is ideal for debt consolidation

Credit Card Drawbacks:

While the positives are apparent, there are a few drawbacks that should also be taken into account.

  • The interest rates can be very high depending on your card’s APR
  • Credit cards come with annual fees, late fees and over-the-limit fees
  • Your CIBIL scores must be over 700 and above to able to apply for a credit card loan with the lowest interest rates
  • You can pay for most services with a credit card but if you need hard cash, you will have to shell out additional interest as withdrawing cash attracts interest from Day 1

When to Use a Credit Card?

Considering the benefits and drawbacks, it is really up to the end user to decide if a credit card loan is really something that can service their immediate monetary needs. If you are still not sure, take a look at the following situations where credit card loans are a better match.

  • If you can pay off your entire balance within your designated billing cycle (45 - 50 days) thereby not accruing interest
  • If you wish the loan to remain flexible by paying only the minimum amount due
  • If you are in urgent need of funds, which you are sure you can easily pay off within a short period of time

When a Personal Loan Works Better?

Personal loans are possibly a better option simply because it gives control over your repayment. Unlike credit cards, personal loans are easier to avail because the eligibility criteria is less strict. At SMFG India Credit, depending on your profile, qualifications and needs, you can avail different types of personal loans which are customised to suit your individual needs.

When comparing a personal loan vs credit card loan, the stark difference is that with a personal loan,  you get a lump sum amount  upfront. This is not the case with a credit card loan which is mostly used to make purchases. Plus, you make repayments via pre-defined EMIs over the tenure of the loan.

Personal Loan Benefits:

Let’s take a look at the benefits of availing a personal loan.

  • The eligibility criteria for personal loans are less stringent in comparison to that of a credit card
  • If you are looking to consolidate debt with a low interest rate, the personal loans are ideal for it
  • It is ideal for situations where you need a lumpsum amount to pay for several things, some of which may also be cash.
  • You have the option to apply for a personal loan either offline or online
  • Once your documents are verified, the amount is disbursed to your account within 30 minutes* of loan approval.
Must Read: How to Apply for a Personal Loan Online

Personal Loan Drawbacks:

Even though the thought of a personal loan may sound appealing, it also comes with its set of negatives.

  • Personal loans usually command an interest rate of between 11.99% to 36% with processing fees additionally, which is slightly higher compared to credit cards
  • You are restricted to a fixed payment schedule with a personal loan
  • Like credit cards, in order to get a low interest rate on your personal loan, your credit score (as well as other factors such as income) should be high.
  • Availability of documents plays an important role in your loan approval process

When to Use a Personal Loan?

You should have a good understanding of your financial situation and determine if a personal loan is an ideal way out. Here is a snapshot of instances when you should be applying for one:

  • If you need a longer repayment period
  • When you need funds for making multiple cash payments
  • When you want tangible options for debt consolidation

Credit Card Loan vs. Personal Loan - Which One is Better?

From an overall perspective, both credit card and personal loan seem one and the same. Whilst you can borrow funds and make repayments, the differentiator is in the interest rates charged for the privilege.

Personal loan vs credit card loan - which one is better? This is indeed a difficult one to call. A lot depends on your need, perspective and circumstance to determine a clear winner.

* Please note that this article is for your knowledge only. Loans are disbursed at the sole discretion of SMFG India Credit. Final approval, loan terms, disbursal process, foreclosure charges and foreclosure process will be subject to SMFG India Credit's policy at the time of loan application. If you wish to know more about our products and services, please contact us

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