When you are in dire need of cash and you don’t have sufficient funds, you often look for credit, there are two ways to do it, either you swipe your card or reach the financial lender. Both the ways will get you the funds within no time, and generally, credit loan is taken when you want funds for short term and a bank loan is taken need a longer repayment tenure to pay back the debt. However, your decision should be based on the interest rate which will be charged from you in both types of loan.
What is a credit card loan?
A credit card accompanies a predetermined pre-endorsed credit limit which can be utilized by the holder in a month. Nonetheless, on the off chance that you are in dire need of money, most banks offer the facility of a loan on your credit card. Here, you can take an advance against as far as possible which you have been given. When the bank affirms your advance solicitation, the cutoff will be credited to your record. Bank charges a specific financing cost for the reimbursement of the credit. You can reimburse this advance through Equated Monthly Installments (EMI) for a predetermined residency.
What is a personal loan?
A personal loan is a unsecured credit borrowing facility in which a borrower need not pledge any collateral as security. Generally, the interest rate offered by lenders in personal loan is higher, it starts from 10.50 percent.
Credit Card Vs Personal Loan
To some people, personal loan and credit card loan may seem similar but they are not, the following points will help you decide which loan would work best according to your needs:-
- Documentation: Both the loans are disbursed very quickly, but a personal loan requires a number of documents, bank statements, rent agreements, passport, id proof and more due to which it can take longer than usual. However, in credit card loans no such document is required and the amount is disbursed within 24-48 hours.
- Interest: Whenever we talk about loans, we talk about interest rates as well. Interest rate is the most important factor which is determined while taking a loan. Personal loans are offered at an interest rate of 13-22 percent, whereas credit card loans are offered at 10-18 percent interest rate. When the interest rates are compared then surely, a credit card loan is a better option. Another key factor is that personal loans are available with reducing balance rates while credit card loans can be availed at a flat interest rate. In case of flat interest rate, monthly interest is applied to the initial loan amount and it is the same throughout whereas in reducing balance loan, interest rate decreases as when the principal amount is paid.
- Unsecured Loan: Both the loans are unsecured loans, there is no need to pledge anything as collateral.
- Tenure: Credit card loan is suitable if you want money for a shorter period of time and you are sure that you will repay the amount in a shorter duration. A personal loan is best for people who want a loan for a longer duration.
- Loan Amount: If you need a large amount then you must go for a personal loan, whereas credit card loans are suitable if you wish to have a small amount of money, for example- if you wish to go on a vacation, you have to buy the latest smartphone.
Now, you know the benefits and drawbacks of both personal loans and gold loans. You should make a decision after comparing all the points which have been discussed in this article. A most important tip is to analyze the sum of money you want, check if the tenure period suits you and repayment can be done easily. As said, a credit card loan is best if you want a smaller amount of loan and if you need a larger amount of loan then you should opt for a personal loan and personal loan can actually improve your credit score when it comes to the long term if you make timely and consistent repayment of your debt. Late payment of EMIs can damage impact your credit score as they are reported to credit bureau. Take your decision wisely