Every once in a while, you’ll need a large amount of liquid funds quickly. So, should you rely on an instant personal loan or get a loan against your credit card?
Both these financial instruments give you access to liquid funds quickly. Plus, you’ll need to pay back the loan amount and interest no matter the avenue you use. Even so, we wager you should apply for an instant personal loan with your lender if you want to maintain your finances. And in this blog, we’ll dig into why.
But before we do that, let’s quickly review loans against credit cards and instant personal loans.
What are credit card loans?
In the simplest sense, credit card loans are pre-approved loans credit card providers extend to you based on your repayment ability, card history, and credit card usage. They are disbursed quickly and have no restrictions on end use. This means you can use these loans to fulfil urgent financial obligations instead of dipping into your savings. And the best part? You can repay the loan via equated monthly instalments (EMIs) spread across a specified period. Besides, your credit card agency will also reduce your credit limit to the extent of your EMI account.
Note not all card providers extend these services. So you may want to check with your credit card provider if you can take a loan against credit card.
What are instant personal loans?
Instant personal loans are pre-approved and unsecured loans that have minimal documentation associated with them. Hence, they get disbursed quicker than other loan options. This means loan borrowers can use the funds to finance their urgent needs. After all, much like regular personal loans, borrowers can use the loan amount however they please as well..
That said, borrowers will have to pay off the loan through equated monthly instalments (EMIs)across the loan tenure. Note that the total repayment amount depends on the principal loan amount and the loan’s interest rate.
Now that we know the basics of personal and credit card loans let us understand the differences between the two.
Differences between a loan against a credit card and an instant personal loan
1. Loan amount
When you take out a loan against a credit card, the maximum loan amount you can withdraw depends on your credit limit. So you’ll only be eligible for a smaller loan if you have a lower credit limit.
In contrast, in instant personal loans, the total loan amount you can withdraw depends on your credit score and finances. If you meet your lender’s specifications, you can comfortably take out the loan amount you need. Although the maximum loan amount you can take out varies between lenders, you can take out bigger instant personal loans compared to credit card loans.
2. Loan tenure
The tenure of a credit card loan depends on your credit card provider. These can extend up to five years or as decided by the card provider. Not just that. You can also take out any number of credit card loans provided they are under the credit limit. This means that you don’t need to worry about taking out new loans even if you’re still in the process of paying off a previous loan on your credit card.
That said, remember that the total number of credit card loans you can take depends on your credit card limit.
Similar to credit card loans, lenders often provide a tenure limit within which borrowers must repay the instant personal loans. These tenures are slightly longer, and the borrower gets to choose a suitable tenure for repayment. This means they can choose a loan tenure that matches their loan repayment ability and comfortable pay off the loan.
3. Documentation
You don’t have to worry about paperwork if you’re getting a quick credit card loan on your existing credit card. You can visit your lender’s website to apply for the loan or request help from the customer desk of your credit card company. Since virtually no documentation is involved, you receive the loan amount quickly as well.
In comparison, instant personal loans have minimal documentation requirements. This means you must furnish the necessary documents to your lender to apply for the loan. Since verifying the documents can take some time, disbursals of these loans are slightly slower. Even so, most lenders try to process these loans within 24 hours.
4. Interest rate
When borrowing a loan, the interest rate and the loan amount determine the ease of repaying the loan. Naturally, you’re looking to get a loan at a lower interest rate to make the loan repayments easier.
When you take a loan on your credit card, you’ll more likely have a higher interest rate than a personal loan. This is because since the eligibility for a credit card is lower, credit card companies offset the risk of loan repayments with higher interest rates.
In comparison, lenders have stricter eligibility requirements for a personal loan. This means they extend loans to borrowers with a better loan repayment ability. Since doing this reduces the risk of default considerably, lenders can afford to offer lower interest rates on personal loans.
Personal loan
Credit card
Loan tenure
Up to five years
As per the tenure specified by the credit card company
Loan amount
As specified by the lender, and based on your loan eligibility. The loan amounts are usually higher than those of credit card loans.
Depends on the credit limit on the credit card
Documentation
Minimal documentation requirements as specified by the lender
No documentation required as a credit card holder
Security
No collateral requirements
No collateral requirements
Interest rate
Lower interest rates compared to credit cards due to the higher eligibility requirements
Higher interest rates compared to personal loans due to the uncertainty of borrower repayments owing to lower eligibility requirements
Disbursement
Quick disbursals within 24 hours post document verification
Quick disbursals, given there is no documentation involved
End use
Loans can be used for any purpose
Loans can be used for any purpose
Table: Personal loan vs credit card loan
Personal vs credit card loan: Which is better
Unlike credit card loans, instant personal loans offer higher loan amounts, lower interest rates, and loan tenures whereby you can easily meet your financial commitments. This makes them the better option among the two.
Looking to get an instant personal loan? Turn to Tata Capital. We offer personal loans with minimal documentation, flexible loan terms, and affordable interest rates. Visit our website to learn more.
20 December 2023
6 mins read
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