Credit Card Loan Vs Personal Loan

Depending on the urgency and requirement, one can opt to take a credit card or a personal loan. But what is the difference between a credit card loan and a personal loan? 

Read on to know more.

Difference Between A Personal Loan And A Credit Card Loan

What is A Personal Loan?

A personal loan is an unsecured loan that banks or other financial institutions provide. Personal loans are instant and require minimum documentation. Customers are not required to provide collateral as security for a personal loan, making them easier to avail.  

The amount you receive as a loan and its interest rate depends on several factors such as income, credit score, credit history, and more. 

The money from this loan can be applied to any valid need for financial support. It must be repaid in line with the conditions set forth by the bank, just like any other loan. 

Personal Loan Eligibility Common Factors

The eligibility criteria for a personal loan can vary depending on the lender, but common factors that lenders typically consider when determining eligibility include:

• Credit Score: A higher credit score usually increases your chances of loan approval. 

• Income Stability: Lenders often look at your income and employment history to ensure you have a stable source of income to repay the loan. 

• Debt-to-Income Ratio (DTI): This ratio evaluates the difference between your monthly income and debt payments. Lenders prefer a lower DTI since it indicates that you make enough money to handle extra debt.

• Age: You typically need to be of legal age (18 or older) and a citizen or a permanent resident of the country where you're applying for the loan.

• Borrowing History: A responsible credit history can strengthen your application.

• Purpose of Loan: Some lenders might consider the purpose for which you're seeking the loan. For instance, loans for education or medical emergencies might have different criteria.

What Are The Benefits of A Personal Loan?

Personal loans offer several benefits to the end user. Here are some common advantages of taking a personal loan. 

• Versatile Use: You can use the money for various needs like wedding expenses, home improvements, or unexpected expenses.

• No Collateral Needed: You don't have to risk your assets since personal loans are unsecured.

• Fixed Interest Rates: The interest rate remains the same throughout the loan, making it easier to budget.

• Quick Access to Funds: Once approved, you can get the money fast to cover urgent expenses.

• Credit Improvement: Responsible repayment can boost your credit score over time.

What is A Credit Card Loan?

Credit cardholders can borrow against their available credit limit through Loan Against Credit Card to get immediate funds. It provides easy access to money without requiring extra paperwork or security. The borrowed sum is then repaid in installments, with interest charges.

Credit Card Loan Eligibility Common Factors

The requirements may vary depending on the lender, but you need to meet the following requirements:

• To qualify for a credit card loan, you must have a credit card. If you do not already have a credit card, you can easily apply for one through the respective bank’s website or mobile app.

• To be qualified for a credit card loan, customers must have a good credit score. A high credit score demonstrates that you are a dependable borrower who will repay your loan on time.

What are The Benefits of A Loan Against A Credit Card?

Here are the benefits of a loan against a credit card:

• Customers can access funds quickly without having to go through a long application procedure.

• Loans secured by credit cards do not require collateral or security.

• Credit card loans have multiple repayment options, allowing borrowers to select the repayment plan that best meets their budget and situation.

• Credit card loans offer competitive interest rates, making them an affordable choice for customers.

• Credit card loans require minimum documentation and are quick to approve.

Should I Opt For a Personal Loan or A Credit Card Loan?

You can avail of a personal loan if your requirement is for a large expense and you are willing to pay for it in EMIs over an extended period of time. For example, if you want a large sum of money for a family wedding, then you can opt for a personal loan.

You can take a credit card loan if you know that you can pay off the amount quickly as compared to a personal loan. For example, if you want an additional amount of money to purchase furnishing products for your home, then you can opt for a credit card loan.

Check the following to know more:

When to Apply for a Personal Loan

• You want a longer repayment tenure.

• To pay off another loan using the amount from the personal loan at a lower rate of interest. This is also known as Debt-Consolidation.

• You want a loan amount that is more than your credit card limit

When to Apply for a Credit Card Loan

• Your expense is not exceeding your credit limit.

• When your requirement is immediate.

• Better interest rate compared to a Personal Loan.

• Your eligibility does not match with the requirements needed for a Personal Loan.

Credit card loans offer quick access and convenience but come with higher interest rates and fees. Personal loans, while requiring a formal application, often have lower interest rates and fixed repayment terms. Choosing between them depends on the urgency of funds and your ability to repay promptly.