A loan is a financial tool that helps salaried individuals to get out of a financial emergency or to spend on a celebratory occasion. This is the impact of credit in our lives. Each month, Loan Singh’s digital lending platform receives thousands of applications from salaried individuals for a personal loan. Gone are the days when applying for credit was considered a tiresome process or even a taboo. Everyone has multiple financial expenses to think about and a personal loan makes sense because of its collateral-free aspect.
Credit card is another financial tool that allows a user to make purchases on credit within a pre-determined credit limit. This same credit limit prevents you from spending more than what you actually need. Over shooting the credit limit leads to a penalty, which then subsequently affects your CIBIL score. Did you know that you can actually apply for a credit card loan as well? But before we understand what credit card loans are, and how they differ from a personal loan, let us first look at what is a personal loan and what are credit cards?
What are Credit Cards?
Credit card is an instrument providing unsecured revolving credit. It is unsecured because it does not involve any collateral. A credit card is a rectangular piece of plastic, or metallic alloy, that identifies your financial credit account (with the corresponding card provider or bank). It is a card issued by banks, or credit card companies, to cardholders and can be used as means to make payments to merchants. The card issuer creates a revolving account, and grants a line of credit to the cardholder. The cardholder makes payments to the merchant via his/her card based on a credit limit assigned by the card issuing company. The cardholder is then required to pay-back the amount spent along with the agreed interest and charges.
All credit cards contain a magnetic strip on the back which identifies your financial credit account. Also present on the card is an RFID chip (for protection against fraud) along with your name, credit card number, and card validity. 2 important terms to know are
Billing cycle – It is a period within which all purchases and payments are accounted for, and billed. Its duration is usually of 30 days. A grace period of 15-25 days is added to the total number of days of the billing cycle. No charges are incurred by the cardholder if the payment of previous month balance is done before the end of the grace period.
Minimum balance – It is the minimum amount to be paid to the credit card company, in case the card holder cannot pay the total outstanding amount by the due-date. It usually is 5% of the total amount to be paid.
What is a Credit Card Loan?
Credit cards have a provision for providing a credit card loan to the card owner. These are pre-approved and are either within or over the credit limit. You have to repay the credit card loan at the pre- approved date while being charged an interest fee. Every card issuing company has their own eligibility criteria for a loan on credit card. The interest rates are generally high for credit card loan and if not paid on time, is levied with a penalty. A processing fee is charged for application of a credit card loan. Many times, a prepayment penalty is charged towards the foreclosure of credit card loan. No documentation or collateral is required for a credit card loan as you already are a credit card holder. The benefits of credit card loan are that you can break your expensive purchases into affordable installments. Some card companies offer a balance transfer feature on the credit card loan EMI wherein you can consolidate and transfer the outstanding balance on multiple credit cards to a single credit card to pay the EMI. The amount of credit card loan depends on the credit limit. A credit card loan does not require a loan guarantor or any post-dated cheques. Credit card loans are different compared to cash withdrawal using a credit card. The limit on cash withdrawals is lower than that provided as a credit card loan, and the interest rate charged for cash withdrawals using credit card is higher than that for credit card loans.
What is a Personal loan?
A personal loan is another type of unsecured credit. You can avail a personal loan for a number of needs such as Travel, Second hand car, Marriage, Festival celebration, Purchasing high end gadgets, Debt consolidation, Home improvement, and Medical Emergencies. With Loan Singh, you can avail a personal loan based on your eligibility criteria. These include current income, repayment history, and credit score (CIBIL, Experian, and the likes). You can avail a personal loan at Loan Singh by providing your PAN Card and latest 6 months bank statement (in PDF). Since no collateral is required, your creditworthiness is the only requirement that can mitigate the risk of defaults by Loan Singh. A personal loan is a fixed debt which you pay off in Equated Monthly Installments (EMIs), over a fixed tenure. Loan Singh is the best source for a personal loan because
It is easy and quick – At Loan Singh, everything from loan application to fund disbursement happens online. With only PAN and bank statement/netbanking credentials, you can apply for a personal loan and pay for your emergency requirements.
No collateral – As mentioned earlier, personal loan is an unsecured loan. All you need for a personal loan is a clean credit repaying capability.
Loan amount and tenure – The loan amount for a personal loan at Loan Singh ranges from Rs.50,000- Rs.5,00,000. The repayment is done via EMIs, with interest rates on reducing balance method. The personal loan tenure can be from 3 to 36 months.
What is the difference between the two?
The one similarity is that both loans are provided after assessing your creditworthiness. Credit card loans are availed faster because the card issuer already knows your income and monthly credit card statement payment behavior. To avail a credit card loan, all you need to do is contact the customer care of the Credit Card issuer and request for a credit card loan. If eligible, the amount is credited to your account within 2-3 days. Credit card loan comes with 0.5 – 1% processing fee. They have pre-closure charges between 2-5% of the principal outstanding amount. Credit card loans come with an option for tenure as low as 6 months.
For a personal loan, the time from application to disbursement is close to 48 hours; if you have provided the correct documents to Loan Singh. As Loan Singh is a digital lending platform, everything is online and hence you need to attach your statement that is downloaded from your bank’s netbanking website. At Loan Singh, you don’t have to pay a prepayment penalty for pre-closure of loan. The shortest loan tenure available is that of 3 months.
Both offer substantial benefits based on your current financial scenario. So, what are your thoughts on personal loan and credit card loans? Let us know in the comments below.