Credit card or Personal loan, Which is better?
For those who do not wish to spend liquid funds from their savings, a credit card is a good financial instrument to use. You can make big and small purchases and pay for them in the following month. Apart from this, you can also avail a credit card loan with your existing credit card.
Personal loans are borrowed funds that can be used for various reasons. You can avail a personal loan from an NBFC and repay the loaned amount in flexible EMIs.
So which is better: a credit card or a personal loan? And what is the difference between a personal loan and a credit card loan?
What Is A Credit Card Loan And How Does It Work?
As the name suggests, a credit card loan is when you borrow funds against your credit card. When a credit card is issued, there is an amount set as a limit against the card. When you avail a loan on a credit card, the loan amount is deducted from the available balance on the card.
Credit card loans are pre-approved loans. You do not need to provide any additional documentation against the loan amount. Once the bank or NBFC approves the request for the loan, the funds are directly credited into your account.
You can use the funds from this loan for any of your needs. The tenure on a credit card loan is short, and, hence, a credit card loan is termed as a short-term loan. You can apply for an online loan on your credit card. The repayment method of this type of loan is through EMIs.
When to Use a Personal Loan
You can use a personal loan whenever you require funds and do not wish to dip into your monthly savings. The funds from a personal loan can be used for various reasons including travel, wedding preparations, home renovation, medical costs, etc.
When to Use a Credit Card Loan
A credit card can be used to make big as well as small purchases. However, how do you decide when it is a good time to use a credit card?
Credit cards are usually used for purchases like air travel, hotel bookings, grocery, dining out, buying appliances, and so on. One of the biggest benefits of a credit card is that it is universally accepted. You can use it to make payments at any vendor of your choice.
A credit card can also be used in case of an emergency when you need immediate funds, without waiting for approval. Credit cards are also known to be a relatively safe mode of payment as the chances of financial fraud are less.
Impact of Personal Loan and Credit Card Loan on Your Credit Score
- Your credit score is a summary of your financial history. It is a cumulative score of your income, expenses, borrowings, and repayments.
- When you avail a personal loan or a credit card loan, lenders require or ask for the credit score. A high credit score gives you the advantage of a lower interest rate, high loan amount, and better loan tenure.
- To achieve a high credit score, you will need to repay your loans on time and have a good balance on debts vs. repayments. Every time you miss an EMI payment on your personal loan or credit card loan, the credit score will fall.
- Credit score can also fall if the borrower makes too many loan queries or already has a high debt to income ratio.
- So which is better, a credit card loan or a personal loan?
- Both the loans have their pros and cons. Before availing either of the loans, you will have to do a comparison on the interest rate of credit card vs. personal loan, and find out if a personal loan is cheaper than a credit card loan.
- When is a personal loan better than a credit card loan? With a personal loan from Finnable, the maximum amount you can avail is Rs 10 lakhs and the repayment tenure can be as long as 5 years. This may not be possible with a credit card loan.
- Finnable lets borrowers avail personal loans at affordable interest rates between 16% to 26%. You can apply for a loan online and get approval within 6 hours of document verification.
- When it’s a credit card loan vs. a personal loan, it is the borrower who ultimately decides what works best.
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