Credit Card Loan Vs Personal Loan

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Credit Card Loan Vs Personal Loan – What is the difference?

Key Takeaways

• Both, Personal Loans and Credit Card Loans are unsecured debts.
• Credit Card Loans are pre-approved loans based on your repayment history.
• Banks offer Personal Loans to existing and non-existing bank customers.
• You can get a pre-approved Credit Card Loan without documentation.
• You can apply for higher loan amounts with Personal Loans.

Acquiring an unsecured loan is incredibly easy today. You can use the loan to finance almost any expense, like wedding costs, vacation planning, buying the latest gadgets, etc. Loans are typically categorised into two types – secured and unsecured. You must pledge collateral when you obtain a secured loan, whereas unsecured loans are collateral-free. Here, we talk about the two most common types of unsecured loans: Credit Card Loan Vs. Personal Loan. Let us compare their attributes.

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Credit Card Loan Vs Personal Loan – The Definitions

If you hold a Credit Card, you may be eligible for Credit Card Loans. These are pre-approved loans offered by your Credit Card issuing bank. Banks typically pre-approve you for these loans based on whether you make your Credit Card payments on time.

A Personal Loan is an unsecured, collateral-free loan that you can repay in Equated Monthly Instalments (EMIs) over a stipulated repayment tenure, typically lasting up to five years. The EMI comprises a mix of the principal amount borrowed and the interest component.

Personal Loan Vs Credit Card Loan – Comparing the features

Let us compare the features of Personal Loans and Credit Card Loans to understand how they differ.

Eligibility

You may be eligible for a Credit Card Loan only if you own a Credit Card. Conversely, you can apply for a Personal Loan if you fulfil the lenders' eligibility criteria of minimum income, employment, and good credit scores.

Documents Required

Since Credit Card Loans are pre-approved, you do not need to furnish any documents. For Personal Loans, you must submit copies of your ID, address, and income proof documents. Today, most banks offer Instant Personal Loans wherein you can submit your documents online and enjoy instant fund disbursals.

Loan Amount

Banks typically offer high Personal Loan amounts ranging up to several lakhs. The maximum limit differs from lender to lender and depends on your income, repayment capacity, and creditworthiness. As for Credit Card loans, the loan amount is capped to your credit limit. So, if your Credit Card limit is INR 1.5 Lakh, you cannot get a loan amount higher than that amount.

Loan Repayment

As mentioned earlier, you can repay your Instant Personal Loan in pocket-friendly EMIs over tenures lasting up to five years. For Credit Card Loan repayments, the EMI amount gets added to your Credit Card bill statement along with other expenses. You can either pay the entire bill amount or the minimum amount due to avoid penalties.

Credit Card Loan Vs Personal Loan: Which is Better?

Both Credit Card Loans and Personal Loans are ideal instruments that can help you access funds. Whether you should choose a Personal Loan, or a Credit Card Loan depends on your requirements such as the loan amount needed, repayment tenure, income eligibility, etc. If you do not qualify for a credit card, an Instant Personal Loan could be the next best option. However, if you do, you must check the interest rates on both before selecting your preferred loan type.

Download the digibank mobile app on your smartphone. Launch the app and click on the "Get Personal Loan" link on the login page.

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*Disclaimer: This article is for information purposes only. We recommend you get in touch with your income tax advisor or CA for expert advice.