Are you confused between a personal loan and a loan on credit card?
A personal loan and a loan on credit card are quite similar but not identical. Both of these are unsecured loans i.e. you are not required to provide any collateral. Both meet different requirements. To figure out which one is suitable for you, you must understand the differences between personal loans and credit card loans. You can then choose one of them based on your borrowing needs and credit situation.
Credit Card Loan or Personal Loan: Which One is helpful?
Application process: A personal loan requires a few documents such as address proof, bank statements, salary slips etc. Whereas, for availing a credit card loan you must have the bank’s credit card. In case of personal loans, banks check your professional details, financial credibility and your credit score. Whereas, in case of credit card loans, lenders already know your income and monthly credit card bill payment behavior.
Interest rate: Interest rate is the most important factor to consider while taking a loan. Usually, personal loans are offered at a 10.49-19.99% (per annum) interest rate, whereas 2.5 to 3% (per month) interest rate is applicable on a credit card loan. However, credit card loans are offered at flat interest rates, while personal loans are offered at reducing balance rates.
In case of a flat rate loan, the rate of interest is calculated on the original principal, while in a reducing balance loan, the interest rate is applicable only on the outstanding principal of the loan on a periodic basis.
Loan Amount: If you want to borrow a small amount, credit card loans would be the more suitable option for you. On the other hand, if you want to get a relatively large sum, personal loans may be more helpful.
Tenure: It depends on your requirements. If you want to avail a loan for a short period of time, say 6-8 months, then opt for credit card loans. Personal loans are usually offered for a minimum 1-2 year period.
You can make a choice on the basis of your financial exigencies, and time frame for which you need the debt.