Posted on 16th May, 2019 | Category: Business | 2 min read
The type of loan you go for is based on your financial need. Being clear about your requirement makes it easier for you to make the right choice. Credit card and personal loans are structurally similar. Both are forms of credit and require monthly repayments. The difference is in the features & interest rates.
A personal loan is usually helpful for expensive purchases, medical emergencies, dream vacations, or even debt consolidation. While a personal loan is unsecured, credit card loans are pre-approved that does not require any documentation.
You can avail personal loans from multiple sources such as financial institutions & banks. Credit card loans can only be taken from the bank whose credit card you own. Both these loans do not require any collateral.
Loan on credit cards should not be mistaken for cash withdrawals. A certain part of your credit card limit is utilised and offered as a loan. While you are required to pay the minimum balance due to keeping your credit balance healthy, you do run the risk of paying a higher interest rate indefinitely.
Personal loans are more flexible and tend to have longer repayment schedules. You can avail a huge loan with repayment options ranging from 1-7 years.
Interest on loan should be the most important criteria for you to consider when you are in the market for borrowing. While shopping for personal loan schemes you will discover vendors who can offer a personal loan for as low as 6%, depending on your credit score. (add a link to the article on credit score here). A credit card loan is offered at a flat interest rate from your bank and is usually between 10-18%.
What you opt for is a choice you need to make by understanding what do you need the funds for. There are attractive benefits and drawbacks in both. Many people use both forms of borrowing for different purposes. The bottom line: Be well informed before you take a loan.