Need for quick funds can arise at any time for various purposes like a medical emergency, a wedding, or a travel plan. At such a point, you have two major options: Personal Loans or Credit cards. Both options allow you to borrow money and pay it back in instalments. Credit cards offer a revolving credit limit that you can borrow from and repay regularly. While a Personal Loan offers an upfront amount with set repayment periods.
However, it’s necessary to understand the difference between a Personal Loan and a credit card. This will help you to choose the better borrowing option that can fulfil your specific needs.
What is a Personal Loan?
A Personal Loan is an unsecured loan borrowed for a fixed term, with no specific end use required. You can use it for marriage, medical emergencies, home repairs or any other purpose. It has a fixed interest rate, and you need to repay it in fixed monthly payments. Generally, personal loans have lower interest rates compared to credit card loans.
What is a Credit Card Loan?
A credit card loan is an amount borrowed against your available credit limit on a credit card, providing immediate access to funds. You repay the amount, including interest, either through EMIs or in your billing cycle. Credit card loans usually carry much higher interest rates compared to personal loans.
Personal Loan vs Credit Card Loan: Key Differences
Here are the key differences that will help you decide the best option as per your unique requirements:
|
Point |
Personal Loan |
Credit Card Loan |
|
Interest Rates |
Personal loans generally have lower interest rates, so the interest you pay is comparatively minimal. |
Credit card loans carry higher interest rates. If you miss payments or pay only the minimum, the interest charged can be significantly higher. |
|
Borrowing Limit |
The loan amount is determined based on your income, credit history, employment, and age. |
You can borrow depending on your available credit limit on the card. Your usable limit decreases as you use the card. |
|
Processing Speed |
Personal Loan approval takes time, as you need to submit an application and KYC documents. The process can take several days. |
Credit card loans are processed quickly, often giving almost immediate access to funds. Converting purchases into EMIs is very fast. |
|
Documents Required |
KYC documents such as identity proof, address proof, bank statements, and income proof are required. |
No additional documents are required; an existing credit card account and a good credit history are sufficient. |
|
Repayment Flexibility |
Personal Loans offer longer repayment periods, resulting in smaller EMIs and greater flexibility. |
Credit card loans usually have shorter tenures with limited repayment options. |
|
Penalty Charges |
Missing Personal Loan instalments incur lower penalty fees. |
Missing credit card loan payments attracts higher penalty fees and additional interest charges. |
Personal Loan vs Credit Card Loan: Which One Should You Opt For?
When you need funds, the biggest confusion often arises between borrowing with a loan and with a credit card. Both offer quick funds and are unsecured loans. This means you don’t have to pledge any collateral to get a Personal Loan or a credit card loan. However, here are some points to help you decide the best option as per your unique circumstances
Use Personal Loan:
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For large purchases such as home renovations, weddings, or medical emergencies.
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When you need debt consolidation or structured repayment over a fixed term.
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If you want lower interest rates and predictable monthly payments.
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When your financial situation allows repayment of a fixed lump sum over time.
Use Credit Card Loan:
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When you need quick or instant access to funds.
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If you can repay quickly to avoid higher interest rates.
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For situations where you need quick funds to cover emergency expenses while leveraging your existing credit score and credit history.
Read Also: How to Manage Your Credit Card Bills Effectively?
To Conclude
Different financial needs can be fulfilled with credit card loans and Personal Loans. With their lower interest rates, Personal Loans are ideal for larger amounts, structured EMIs, and long-term costs such as home improvements or medical bills. Credit card loans offer quick access to funds for emergencies, regular expenses or urgent requirements. However, they have shorter repayment terms and higher interest rates. Always borrow responsibly and consider the loan amount, repayment ability, and urgency when deciding between the two.
Planning to take a Personal Loan for your urgent expenses? Get a loan from Poonawalla Fincorp with affordable rates and easy repayment terms. Apply now for a Personal Loan and fulfil your financial needs quickly!
FAQs
Can a Personal Loan affect my credit score?
Personal Loans can, in fact, improve your credit score if you make timely instalment payments. However, late EMI payments can negatively impact your credit score.
Is it better to take a credit card loan or a Personal Loan for emergency expenses?
It depends on the size of the emergency. For small amounts, a credit card loan is convenient if you have an existing card, as it can be processed quickly. For larger expenses, a Personal Loan is usually a better option.
Can I apply for a Personal Loan online?
Yes, you can apply for a Personal Loan online through the financial institution's website or mobile app. The online application process is quick and convenient, allowing you to submit KYC documents, income proof, and other required details for faster approval.
What are the benefits of a Personal Loan?
A Personal Loan offers quick access to funds for various financial needs, such as medical emergencies, home renovation, or debt consolidation. It comes with fixed EMIs, lower interest rates, and flexible repayment options for better financial planning.
Which is better for debt consolidation, a Personal Loan or a credit card?
A Personal Loan is usually a good option for debt consolidation due to lower interest rates and predictable EMIs.
We take utmost care to provide information based on internal data and reliable sources. However, this article and associated web pages provide generic information for reference purposes only. Readers must make an informed decision by reviewing the products offered and the terms and conditions. Loan disbursal is at the sole discretion of Poonawalla Fincorp.
*Terms and Conditions apply