Personal Loan and Credit Card Loan are quick and easy loan options nowadays. My friend had recently purchased a flat. After exhausting his home loan limit he was looking for extra 3 Lakh to complete interior of his home. The only option left in front of him was to opt for another loan. He approached the bank and described his problem. The bank manager gave him two options. (1) Personal Loan of 6 Lakh on flat interest (2) Credit card loan of 3 Lakh. He was confused and looking for answer which one he should opt for- credit card loan or personal loan? If you are also in a similar situation here is an answer to your question.
Credit Card Loan or Personal Loan – It’s your choice
What is Credit Card Loan?
Credit Card Loan is unsecured loan offered in terms of cash advance, balance transfer or purchase. This loan is offered to credit card holder. You need to pay back loan amount in the future by the due date.
Also Read – Best Personal Loans – Important checklist to follow
What is Personal Loan?
Personal Loan is loan given to the individual based on credit history, income, and repayment capacity. Repayment in the case of a personal loan is through fixed amount installment over a fixed term.
How to select between Credit Card Loan and Personal Loan?
It is difficult to make a choice between credit card loan and personal loan as both of them sounds similar. However, following points will help you in taking the correct decision.
- Application Process – Application process in both loan is different. Credit card loan is available easily. You just need to walk into your bank and opt for this loan. In case of Personal loan you need to submit form 16, bank statement, income proof and KYC document for a loan application. Processing time in case of personal loan is longer compare to credit card loans.
- Processing fee and pre closure charges – Processing fee in both personal loan and credit card loan are same. It is generally in the range of 0.5-1%. The pre closure charges in both cases would be in the range of 2-5%. In credit card loan you can lower the tenure of a loan by making pre-payment. However, the personal loan comes with a fixed duration of 12-24 months.
- Loan Amount – A Personal loan is more suitable for a higher amount. If you are looking for small amount credit card loan could be a suitable option. In this loan you will get amount up to your credit limit.
- Interest Rate – Interest rate plays a crucial role in the comparison. A personal loan is offered at the interest rate of 13-22%, however, credit card loans are offered at 12-15%. The rate of interest depends upon a bank. Personal loans are offered in two variant flat and reducing balance rate. In flat rate, interest amount is calculated flat on entire principal. On the other hand, in reducing balance rate interest amount will be calculated on reduced principal.
After making a comparison of both loan option my friend decided to opt for credit card loan. As his requirement of a loan was less and he was in a position to repay this money in less than 6 months.
Given a choice which loan you prefer Credit Card Loan or Personal Loan and why?