Personal Loans vs. Credit Cards: What Should You Go For?

What do you do when you need to make a big purchase, but require extra funds because you don’t have sufficient cash to cover the full purchase? For most of us, the choice is clear: you either take a Personal Loan or swipe your Credit Card. But before you can go about making a choice on which of these two options you must avail, you need to first understand what they are, and which option would work best for you based on your needs and requirements.

So, what is a Personal Loan and a Credit Card Loan?

Personal Loan:

A Personal Loan is an unsecured consumer loan that is provided to working salaried professionals for their personal use. Such loans are provided by banks and financial institutions to the end consumer without asking them for any security or collateral. This is the reason these loans are also termed as unsecured loans. Therefore, these loans also carry with them a high rate of interest so that the lending institution covers its risk in the absence of any collateral.

Credit Card Loan:

A loan on a Credit Card does not require any documentation, and it is pre-approved. Compared to a Personal Loan, it is quite a fast way to avail unsecured credit. In this loan, a certain part of your Credit Card limit that is still unutilized is offered to you as a loan. However, a loan on your Credit Card is not same as a cash withdrawal. There is normally a limit on how much you can borrow each month (this is not a lump sum like a Personal Loan).

Now, which one should you go for?

Credit Card Loans vs. Personal Loans

Personal Loans and Credit Card loans may seem similar (they are both types of credit that are repaid with interest), but the following are a few differences between the two:

1. Documentation: There is a bit of documentation required while applying for a Personal Loan and it takes a few days to get approved and eventually disbursed. In comparison, a Credit Card loan does not need any documentation and is even faster to get than a Personal Loan.
2. Interest: This is naturally the most important point to be considered while taking a loan. You need to note that Credit Card loans can be availed at flat interest rates, while Personal Loans are available with reducing balance rates. This means that interest on Personal Loans is cheaper, and because there is an eventual limit on the amount you can borrow in a Personal Loan, there is no danger of accruing interest on your debt until it is paid off (as is the case with Credit Card loans).
3. Convenience: To avail a Personal Loan, you do not have to be the bank’s customer; however, to avail a loan on your Credit Card, you must own a Credit Card of that particular bank from where you wish to apply for a loan.
4. Unsecured Loan: Both Personal Loans and Credit Card are unsecured loans, and there is no collateral or security involved in both these cases.
5. Tenure: Credit Card loans can be taken for short periods, while Personal Loans are usually taken for a longer duration (they are normally taken for a period of 3 to 7 years).
6. Usage: If you’re in need of a small amount, a Credit Card loan would be better, because, with Personal Loans, you can avail considerably bigger amounts as a loan.

Now after having gone through the above points, it will be easier for you to choose which option to go for depending on why you need the loan (your requirement), how soon you need it (ease of access) and the repayment timeline you are comfortable with.

Check your Loan Eligibility

At the same time, if you’re looking to get an Instant Personal Loan in a hassle-free manner, you can also head over to KreditBee. It offers Personal Loans in the form of a Salary Advance for young professionals, starting from ₹1,000 up to ₹ 3 Lakh and it’s an option worth considering if you’re in urgent need of short-term funds to meet your expenses.