Credit Card Loans vs. Personal Loans: Which Is Better and Why?

Are you intrigued to know what is a credit card loan and how it is different from a personal loan?  These two are the most viable financial tools for managing a short-term money crunch. You can receive funds at specified interest rates and must repay as per the agreed plan. 

 

Both ways have their salient features, advantages and differences. It is essential to know about these parameters before making a choice that suits your short-term goals. Let’s examine a few quick facts and compare credit card loans and personal loans. 

 

What is a Credit Card Loan?

A credit card offers revolving credit for your expenses. You can get a loan against your credit card and access instant funds without collateral or additional documents. It is generally a pre-approved loan, so the funds are available instantly. 

 

The loan amount depends on your total credit limit and the available limit. Additionally, the amount is blocked from your credit limit. You can pay your debt in easy instalments at an applicable interest rate. 

 

What is a Personal Loan?

It is also an unsecured form of loan but does not have a revolving feature like a credit card loan. The lenders deposit funds in your account, which you can repay over time with applicable interest. It is also referred to as an instalment loan, as the repayment happens in instalments. 

 

A personal loan is approved based on your income, credit history, and capacity to repay it to the lender. It is also a multi-purpose loan, as there are no restrictions on how you use the funds, and you can use it for

  • Medical expenses

  • Wedding

  • Education

  • Home renovation

  • Debt consolidation

 

Key Differences Between Credit Card Loans and Personal Loans

Parameter

Credit Card Loan

Personal Loan

Eligibility 

Select users are only eligible 

Non-consumers may also apply

Documentation 

basic paperwork that the issuer has requested

Identity proof, income proof, residential proof, and other documents, as requested

Approval Time 

Instant, as it is a pre-approved offer, and the issuer has all the details

Higher than credit card loans, as the issuer will have to process and verify your application

Your Monthly Payments

Paid in instalments, which are a part of the monthly bill

Paid in specified instalments, and the amount depends on the loan duration and the borrowed amount

Interest Rates 

They have a higher interest rate, which depends on your credit score and other factors 

They usually have a lower interest rate, and you can choose between a variable or fixed interest rate

Fees 

Apart from the interest rate charged, credit cards usually have monthly or annual fees

The lender may levy a processing fee, which can be a fraction of the loan amount

Borrowing Limit

According to your total and available limit and at the issuer’s discretion 

Calculated by the bank based on your income and other eligibility factors, like credit score

Disbursement 

Funds are transferred directly to the merchant or the seller. 

Sanctioned amount is transferred to the borrower’s account. 

Application

You can apply in a few steps, as it is a pre-approved loan

You can apply online with the required documents

 

When Can You Opt For a Credit Card Loan?

Here are some instances where you can consider getting a credit card loan:

  • If you need immediate access to funds

  • If you have a relatively small requirement

  • If you do not qualify for personal loan or other types of loan

  • If you get a lucrative interest rate when compared to a personal loan

 

When Can You Opt For A Personal Loan?

Here are some scenarios where you can apply for a personal loan:

  • If you have time to wait for approval 

  • If you get a low interest rate

  • If you need a more significant amount for substantial expenses

  • If you cannot pledge collateral but need a high-value loan

 

What Should You Choose? 

Both credit cards and personal loans have their individual uses and benefits. Your choice must be based on your requirements. Analyse your financial situation and the ability to pay back the borrowed sum along with interest over a suitable tenure. 

 

Remember, a credit card is suitable only if you control your budget and restrict your extravagant expenditures. Do not forget to check the terms and conditions of lenders to avoid penalties. 

 

You can get the One Credit Card and enjoy various perks, including instant loans. The application procedure is simple and can be done online via the One Credit Card App. The card offers instant virtual credit card activation and flexible repayment with easy conversion to EMIs. 

You also get up to 5X rewards on your top 2 monthly spending categories and can redeem them instantly with no additional charges. To experience these amazing benefits on your new credit card apply now.

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