Personal Loan vs. Credit Card Loan – How Do They Differ?

Personal loan is not the only example of an unsecured credit, even a credit card loan can be considered a type of unsecured credit.

“What! You can avail a loan using a credit card?” asked Neelam, a CA from Pune, who also spluttered out her coffee at the same time. “Of course” said Sweta, giving her a ‘You-Didn’t-Know-That?’ look. “You can always get a loan via your credit card, but I prefer an online personal loan”. “Why do you say that?” asked Neelam again, “I feel a credit card loan is better. As I am a compulsive credit card user, I would any day go for a credit card loan” she continued. “Wow! Just because you use a card a lot, makes you prefer a credit card loan? Let me first give you a run down on what a loan is, before we get to the differences and benefits for each…” said Sweta.

Let’s look at excerpts from their loan-heavy conversation…

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The Premise…

”Look Neelam, a loan is a financial tool that helps salaried individuals, like us, to get out of a financial emergency. We can make use of a loan for buying a house, car or personal requirements…” “Hold on, hold on Sweta. You mentioned house and a car, but those are loans provided on collateral right?”

Sweta retorted “Yes, but I was speaking about loan in a collective sense, we are so dependent on loans that it has made ‘credit’ an essential part of our lives. 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”.


Personal loan is not the only example of an unsecured credit, even a credit card loan can be considered a type of unsecured credit.


Now sitting upright on her chair, Neelam gets animated, pinching her fingers illustrating an imaginary card, she replies, “Fine Sweta, I agree, but don’t look down on a credit card as a harbinger of financial woes. A credit card is also a great financial tool which allows someone like me to make purchases on credit, within a pre-determined credit limit of course. That same credit limit prevents me from spending more than what I actually need. Over-shooting the credit limit leads to a penalty, which will subsequently affect my credit score. Wait, I read a great piece on credit cards recently on Loan Singh Finance Blog. Sweta looking interested, orders for bread pakodas from the local ‘Chunnilal Chai Wala’ across the road. Chhotu, the attendant gets them within 50 seconds.

Neelam asks Sweta to read from a Loan Singh blog link she had meantime opened on her smartphone. It reads…

Credit Card Meaning

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 a 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.

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The Buildup…

Neelam takes her smartphone back as Sweat nods in approval towards the pointers she just read from Loan Singh’s finance blog.  Sweta continues, “I knew that credit card holders have a provision for applying for a credit card loan. These are pre-approved loans and are either set within or above 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”. Neelam has now devoted her complete attention to Sweta’s sermon. She wanted to buy a brand-new Samsung S9 since the time it was released a month ago, she has been pondering about getting it via a credit card loan.

Sweta, who is totally in the zone, continues, “A processing fee is charged for application of a credit card loan. Many times, a prepayment penalty may be 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”.


Personal loan is not the only example of an unsecured credit, even a credit card loan can be considered a type of unsecured credit.


“But Sweta”, pondered Neelam, “What about the Samsung Galaxy S9? I want to buy it. Obviously I wouldn’t buy it via collateral. I want to buy outright via a personal loan. Does my requirement fit into a personal loan category?”

“Of course” Said Sweta. “A personal loan is also a type of unsecured credit, which can be availed for reasons or purposes such as travel, second hand car, marriage, festival celebration, purchasing high end gadgets, just like your Samsung Galaxy S9; debt consolidation, credit card refinancing, home improvement, and medical emergencies. The same link that you showed me, i.e. of Loan Singh, is a digital lending platform that lets salaried individuals like you and me apply for an online personal loan based on our 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.”

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The Deuce

Neelam, looking convinced, tried to get the debate to a close.

“I feel there is a similarity among both loans. They both are approved only based on one’s creditworthiness. Credit card loans are pre-approved thanks to the provider already knowing how prompt the card holder is in his/her 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 done 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 the personal loan. The shortest loan tenure available is that of 3 months. Both offer substantial benefits based on your current financial scenario”.

Sweta, by now, had disconnected from the conversation and was going through an array of products on Amazon. The context of this conversation however, would live in their memory for long…

Click here to see the connection between personal loan and credit cards

Loan Singh is a digital lending platform that prides in providing an unsecured online loan to salaried individuals. You can apply for instant funds with instant approval. An easy emergency loan can be availed in the form of a personal loan, which is not a bank loan. You receive a low personal loan interest rate. This instant loan, which is basically a quick loan, can be paid via easy EMI and can be availed for a number of loan purposes such as:

You can calculate your easy emi using our personal loan emi calculator. We accept bank statement, PAN, and Aadhaar for instant loan pre-approval. A bad credit score or credit report errors can lead to personal loan rejection. Personal loan defaulter consequences can also ruin your credit score. Improve your credit rating by avoiding emi repayment default. The ‘Loan Singh Blog’ is one of the best finance blogs in India.

Loan Singh’s Online Presence

Loan Singh is not an anonymous digital platform. We are present on almost all leading social media platforms. All you need to do is look for us. Some destinations you can find us on are:

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Personal loan is not the only example of an unsecured credit, even a credit card loan can be considered a type of unsecured credit.


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