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Credit Card Loan Vs Personal Loan – Difference Between The 2 Options

When it is about borrowing funds for smaller expenditures, you can clearly use your credit card to make purchases for the time being. However, when you require making massive expenditures that surpass your credit card limit, loans can get you out.

Just like credit cards, you can borrow money from a financial institution when you avail a loan. However, credit card usage makes you liable to make the repayment of the outstanding amount monthly, while loans come with a longer repayment duration. For instance, if you hold an SBI credit card, then the SBI credit card statement will be generated monthly, which you must repay by the due date. In the case of a personal loan, you must repay a portion of the principal component along with the interest constituent by the due date.

When it is about borrowing funds from a financial institution to mitigate your present expenditures, there are 2 ways of doing this – you can either select to transact through a credit card or a personal loan.

Read on to know the difference between a personal loan and a credit card loan:

Credit card loan – What is it?

A credit card loan is a pre-approved credit option from the bank. As you already hold a credit card with the credit card issuer, all your financial and personal information is with the financial institution. Due to this, credit card loans do not require any documentation process and hence are looked upon as pre-approved.

A credit card loan is one of the fastest ways of availing of an unsecured credit option. When you avail loan against a credit card, the loan amount is deducted from your available credit card limit and is ultimately transferred to your savings account. It must be considered that a loan against a credit card is not the same as a withdrawal through a credit card.

When should you apply for a credit card loan?

You must apply for a credit card loan in the listed situations –

∙       If you require cash in the case of an emergency.

∙       If you require mitigating your expenditures of a considerably smaller amount.

∙       If you are eligible for the personal loan (or any other kind of loan).

Personal loan – What is it?

A personal loan is an unsecured credit option that might be borrowed from a bank for a bigger expenditure. Usually, a personal loan is availed in the case of medical exigencies, starting a new business, purchasing a property etc. Being an unsecured credit option, a personal loan incurs a high rate of interest. Also, as the loan proceeds in most cases are massive, these kinds of credit options have relatively longer repayment duration.

Any individual can avail personal loan from any financial institution. Hence, when you place the application for a personal loan, you must first prove your loan eligibility and then go through the verification process to avail of the loan.

When should you apply for a personal loan?

You must apply for a personal loan in the listed situations –

∙       When you require mitigating expenditures that include a massive amount.

∙       If you hold at least a week’s time to wait for the loan to proceed.  

∙       When you take the decision to purchase a car, home or begin a business.

Even though both kinds of loans have numerous similarities in terms of provision of credit, like the offering of fixed proceeds at a pre-approved interest rate, interest and principal payment on a monthly basis, additional fees on late payments etc. But even after such similarities, there are several differences between a personal loan and a credit card.

Have a look at a few of the common distinctions to figure out which one will be better for you –

FeaturePersonal loanCredit card loan
Application procedureYou will be required to show specific documents to apply for the personal loan for verification purposes.Such loans do not need any additional documentation as lenders already have your financial and personal details.
Loan amountThis loan must be preferred in the case of a bigger loan amount.This loan is suitable if you want to avail a lesser amount.
Loan durationPersonal loans have longer repayment tenure.Credit card loans have shorter repayment tenure.
Additional expendituresLenders levy processing charges and other expenditures on personal loans, besides interest charges.Credit card loans have no additional expenditures besides interest charges.
EligibilityEven non-customers of banks can place applications for this loan type.Just the credit card users can apply for this loan type
Loan amount paymentThe loan amount is paid as a lump sum to your current/savings account or through a cheque or cash.The loan amount is directly transferred to the current/ savings account
Time required for the approvalA personal loan is usually approved within 3 to 5 working daysA credit loan is usually approved within 24 hours of the loan application
Loan amount repaymentThe loan amount should be paid to the bank in a pre-specified instalment under a pre-approved time period.The loan amount must be repaid in monthly instalments as part of your credit card bill.
Maximum loan proceedsMaximum loan proceeds must be determined by the bank based on your credit history and income.Maximum loan proceeds is determined on a pre-approved card limit set by the issuer

FAQ

Is a personal loan better as compared to credit card debt?

Both the loan types come with their own benefits, features and drawbacks. You must determine which loan to borrow based on your needs. If you require a massive amount to mitigate bigger expenditures, then you can choose to avail a personal loan; else loan against a credit card will be a better choice. Also, before you click on the credit card apply button, ensure to compare amongst different issuers to select the best card offering the lowest rates.

Does a personal loan affect your credit score?

No, a personal loan does not impact your credit score. In fact, making personal loan repayment on time will assist you in ameliorating your score instead of impacting it negatively.

Can I avail a loan through a credit card?

Yes, you can avail loan against a credit card. This kind of loan is known as a credit card loan and must be availed in the case of smaller expenditures that must be repaid in a shorter time period.

I require a smaller amount for my vacation, and for this, which loan must you opt for?

As you require just a smaller loan amount for your vacation, you can consider borrowing a credit card loan. 

Ahsan Khan
Ahsan Khan
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