3 Point Analysis – Personal Loan vs. Credit Card Loan




An urgent need for funds can pop up anytime. You need to either have savings ready to manage these emergency spends or apply for a loan. Paying via regular monthly installments should not put a load on your income or savings. If you own a credit card, you can make use of it to avail a loan as well.

Before we look at the difference between a personal loan or credit card loan, let us first understand what each of them mean.


Personal Loan

Personal loan is an unsecured loan that you can avail for just about any personal need, including emergencies, home improvement, a vacation or for wedding expenses etc.

Personal loans are provided based on key criteria such as income, credit history, repayment capacity etc. A lump sum amount is provided and it is not secured against any assets like vehicle or home loans. Since no collateral is asked for, higher interest rates are levied to mitigate the risk of default. Personal loan is a fixed debt which you pay off in equal installments over a fixed number of months. If you avail a personal loan from a Digital Lending Platform, no prepayment penalty is charged for clearing the loan ahead of your loan tenure.



Credit Card

A credit card allows you to make purchases using credit allotted by the bank or credit card issuer via the credit card. You can spend using your credit card up to a credit limit.

You need to repay the bank or credit card issuer at the end of a billing cycle. Failure to repay back or carrying the balance to the next month leads to penalties or a higher interest rate being levied.

Credit card issuing companies provide credit card users with offers and specials to make them continue using the credit card.


Credit Card Loans

Credit cards also provide you with an option for a pre-approved loan either within or over their credit limit. Similar to the other loans provided by banks the credit card issuer provides you – the credit card holder with the loan which you can repay at a later date while being charged an interest fee. Every issuer has their own eligibility criteria for loan on credit cards. The interest rates are generally high for credit card loans and if the loan is not paid on time, penalties are levied by the bank or credit card issuing authority. A processing fee is charged for application of a credit card loan. Pre-payment penalty is charged towards foreclosure of the loan. No documentation or collateral is required for credit card loans.

The benefits are that you can break your expensive purchases into affordable installments. Some banks offer Balance Transfer feature on EMI wherein you can transfer the outstanding balance on other credit cards to a single credit card and pay the EMI. The amount of loan depends upon the credit limit. Credit card loans do not require a loan guarantor or any postdated cheques.

Credit card loans are different compared to cash withdrawals using credit card. The limit on cash withdrawals is obviously lower than that provided as a loan. The interest rate charged for cash withdrawals using credit card is higher than that for credit card loans.



Difference between Personal loan and Credit Card Loans

  1. Application Process

Although both loans are offered after due diligence, credit card loans are available more easily because the bank or credit card issuing company already knows your income and monthly credit card bill payment behavior. All you need to do is call up the customer care of the credit card issuing company and request for a loan. If eligible, the amount is credited to your account within 2-3 days.

A personal loan can be applied for online via digital lending platforms and you get the amount in your bank account within 2 days. Banks, on the other hand, take close to a couple of weeks between approval and disbursement.


  1. Fees and Charges

Both personal loan and credit card loans come with around 0.5-1% of processing fee. Both also have pre-closure charges between 2-5% of the principal outstanding amount. Credit card loans come with an option for lower tenure as low as 6 months whereas most banks offer personal loans for a minimum of 12-24 months.


  1. Interest Rate

Most banks or credit card issuing companies offer credit card loans at flat interest rates (applied on the initial loan amount and remains same during the entire tenure even if principal amount decreases), whereas personal loans are mostly offered at reducing balance rates (interest outflow decreases as and when principal is paid).

Personal loans are usually offered by banks at an interest rate of approximately 12.50 – 16.60%.

For credit card loans, the interest rates are higher at around 15-21%. In comparison digital lending platforms tend to be the most competitive, besides ensuring that the application to disbursement process is much faster.


What are your thoughts after comparing the two loan options? Both offer substantial benefits and based on your need or requirement you can opt for personal loans or credit card loans.


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