By understanding how to take a loan on a credit card, you can use it in an emergency. Unlike regular personal loans, credit cards give you instant access to funds without the need to seek approval or even complete an application form. However, there are other criteria to consider when choosing between personal and credit card loans.
The amount you want to get can be a major deciding factor. You can make an informed decision after getting a clear picture of how both credit facilities work.
Factors to Consider While Applying
When choosing between credit card loans and personal loans, several key factors need careful evaluation:
Documentation Requirements: The documentation process for obtaining a credit card and personal loan is different. Let’s look at how the process varies in both cases:
- Credit card loans require zero documents since they’re pre-approved and based on your credit limit, while personal loans need extensive paperwork, including your pay slips, bank statements or ITRs as well as KYC paperwork
- Credit card loans offer instant approval, while personal loans may take 2–3 days to process though some issuers may also approve your application in a few hours
Interest Rate Structure: Getting a loan against a credit card usually attracts a higher interest rate. Depending on the issuer, it can vary between 13-18%, with GST charged extra. On the other hand, the rate on personal loans can be lower or higher, depending on creditworthiness and other factors.
However, the interest calculation method differs significantly. Credit cards usually apply flat interest rates, meaning the interest remains constant throughout the tenure. At the same time, personal loans may use reducing balance rates where interest decreases as you pay off portions of the principal.
Loan Amount Accessibility: The borrowing limits also differ and is based on the type of loan you’re applying for:
- Credit card loans are limited to your available credit limit, while personal loans can provide higher amounts based on your income and creditworthiness
- Credit cards offer instant accessibility but require you to be eligible based on your past bill repayment behavior and credit score; personal loans have stringent terms you need to meet to be eligible too
Repayment Flexibility: Both options come with different repayment structures:
- Credit card EMI tenures typically range from 24 to 36 months, while personal loans offer an extended repayment period of up to 5 years
- Credit cards provide a grace period of 15 to 45 days before EMI starts, while personal loans don’t offer that option
Why Consider Credit Card Loans
Credit card loans are sometimes considered to be a better option than personal loans. Let’s take a look at why they have become a preferred option:
| Quick Access to Funds |
|
| Lower Initial Costs |
|
Why Consider Personal Loans
Personal loans have their own set of advantages that make them preferable; the reasons are listed below:
| Higher Limit |
|
| Structured Repayment |
|
| Lower Overall Costs |
|
When choosing between the two, consider your specific needs. A credit card loan can be helpful for immediate, short-term requirements, while personal loans are mainly used for significant expenses, like weddings, overseas education, etc.
Since credit card loans allow you to borrow only a percentage of your credit limit, you can consider personal loans for better interest rates and a large loan amount. In some cases, you may not be eligible for a credit card loan, in case you have defaulted on payments or have a credit card on FD where this facility is not available.
So, your decision should be based on the following factors:
- Urgency
- Amount Needed
- Preferred Repayment Tenure
- Credit Score
- Eligibility
- Required Documents
Apply for credit only after comparing the advantages and disadvantages of a credit card loan and a personal loan. The One Credit Card is a great option if you’re looking for instant credit with zero annual and joining fees. Using the powerful One Credit Card mobile application, you can also apply for OneCash – a quick loan that helps you meet emergencies with ease.
You can access several benefits like 5X reward points on your top two spending categories each month, a range of deals on shopping and more. For example, you can get flat 35% off on Snitch and can save up to ₹5,000 while booking tickets on Yatra. Apply online to explore its benefits.