Personal Loan or Credit Card Loan - Which one should you take?

For emergencies that require immediate access to funds, most individuals tend to liquidate their savings. However, it takes a lot of time to save money and urgent finance needs can drain your savings, even before you’ve started scratching the surface.

Instead of liquidating your finances, it makes more sense to take a loan from a reliable financier. Most financial institutions offer credit card loans or personal loans to customers. While both of these are unsecured loans, they are not the same. Before you can decide which of these must be taken for emergencies, let’s understand these loans better.

What is a personal loan?

Personal loan is a sum of money borrowed from a financial institution for a specific tenure. This borrowed amount of money can be used for funding diverse financial needs, and you can repay it in the form of monthly instalments, as per your preferred tenure. Taking a personal loan requires no collateral, which makes it easy to avail financing and fund requirements easily.

What is a credit card loan?

Unlike personal loans, credit card loans are given out only to credit card holders. Generally, a specific part of your credit card limit is offered as the loan amount. Similar to a personal loan, borrowers of credit card loans can easily choose how they wish to spend the money they’ve borrowed.

Basic differences between personal loans and credit card loans

While there are a few similarities between a personal loan and a credit card loan, there are also some fundamental differences, which have been listed below:

Considerations	Personal Loans	Credit card loans
Who can apply?	Everyone can apply for Personal Loan	Only credit card holders are eligible
Where to avail?	You can avail a personal loan from any financial institutions	Only your credit card company can offer you a credit card loan
Rate of interest	Compared to credit card loans, the interest rate is lower	The rate of interest is higher
Loan amount	Borrowers can take a significant amount as loan	Only a part of your credit limit is offered as the loan amount. Therefore, the loan amount is not as high, compared to personal loans
Approval and disbursal time	Time taken is longer for approval and fund disbursement	Instant approval and fund disbursement

As you can see, there are several differences between both these loan types. However, as you can see from the above findings, borrowers do not have many options in case of credit card loans. On the other hand, borrowers get many options when it comes to applying for personal loans. They can survey the market for the best available offers, rate of interest, tenure, foreclosure options, and then choose the lender. And the most important aspect for any potential borrower is to evaluate the rate of interest and repayment flexibility. With high interest rate, a person may not to be able to loan the desired amount or will have to strain the pocket later on. A financial decision as big as taking a loan either as personal loan or credit card should be taken with utmost cognizance.

So, which one is better – personal loan or credit card loan?

While both loans are unsecured, these cater to the individual needs of different customers. It is better to select these, basis your purpose. If you think that a small sum of money can address your needs, you can choose to opt for credit card loans. However, you would need to have a good pre-approved offer to avail a credit card loan.

On the other hand, personal loans are a better choice if you’re looking for a larger sum of money. You can take a personal loan for education, home renovation, vacation, wedding, and many other personal reasons. You can also take a personal loan to pay off other debts. A credit card doesn’t allow the borrower to loan the money beyond a certain limit and the repayment guidelines are stringent. While credit cards are a better option with small payments at high interest rate, a personal loan allows the borrower to apply for higher loan amount with repayment flexibility.

In conclusion

If you choose to go for a personal loan, it is advisable to compare all the offers available in the market. First, decide how much money you need. After that, compare the interest rate, tenure, foreclosure/pre-payment options, and calculate your EMI before choosing the lender.

Poonawalla Fincorp offers Personal Loans starting at just 9.99% p.a. rate of interest. Moreover, you can reap the benefit of zero foreclosure charges and a very small processing fee.