Loan on Credit Card vs. Personal Loan

Loan on Credit Card is a pre-approved loan extended to you on the basis of credit card usage, repayment and history. Being a quick and convenient method of borrowing, it can be very helpful in case of a financial emergency. However, the interest rate on loans against credit cards is usually higher than that on a personal loan.

Personal Loan is an unsecured loan provided by banks or financial institutions on the basis of certain criteria such as employment history, repayment capacity, income level, profession and credit history. Also known as Consumer Loan, it is a multi-purpose loan that can be used to meet any of your immediate needs.

Following are the significant parameters on which credit card loans differ from personal loans-

Basis of Difference	Credit Card	Personal Loan
Eligibility	Only select credit cardholders are eligible	Non-customers of the bank may also apply
Procedure for Borrowing	By accepting a pre-approved offer extended by the bank or by applying for the same	By applying to a bank or financial institution with documentation
Disbursement	Credited directly to savings/current account (if with the same bank) or in the form of a cheque	Amount paid as a lump sum to the customer’s savings/current account or via cheque
Approval Time	Within 24 hours	3-5 business days
Repayment	EMIs added to monthly credit card statement for the said tenure	As EMIs to the bank for a specified tenure
Tenure	Usually from 1 to 5 years	Usually from 1 to 5 years
Borrowing Limit	Up to the pre-approved limit set by the provider	To be calculated by the bank on the basis of income proof
Interest Rates	Higher than personal loans; varied from bank to bank and may also vary from customer to customer	10.50% onwards; depends on the customer’s income and credit history
Documents	No additional documents required	Identity proof, address proof and income proof required

You should go for a credit card loan when you-

• When you require immediate access to cash
• When you have a comparatively smaller requirement
• When you are not eligible for a personal loan
• If you are getting an attractive interest rate in comparison to personal loan

You should go for personal loan when you-

• Need loan for a comparatively bigger amount
• Can wait for up to a week for the loan to get approved and disbursed
• Wish to compare multiple offers and then choose a loan
• Need to pay a business or person who does not accept credit cards

Tip: First analyze the sum of money you require. Then check if the tenure suits you and the repayment is feasible against the utilization of the loan amount. For a small financial requirement, a credit card loan is an ideal option. But in case you need a big amount which you wish to pay later, you should opt for a personal loan.

Do personal loans hurt credit score?

No credit instrument would have a severely negative impact on your credit score as long as you keep making regular payments. For example, if you miss an EMI payment on your personal loan, it will show up as a missed payment on your report resulting in a drop.

Should I take out a personal loan to pay off credit cards?

If you are unable to afford credit card payments, taking a personal loan with a lower interest rate and using it to pay off the credit card balance in full may be a good option.

Can I take a loan from a Credit Card?

Credit card loans or loans against credit cards are usually pre-approved and can be availed instantly. However, if you do not have any pre-approved offers, you may request for the same. The approval will be at the bank’s sole discretion.

What is the benefit of a personal loan?

A personal loan gives you a lump sum of money upfront, allowing you to pay it back over a fixed term – typically a period of 1-5 years. Loan rates are negotiable comparatively lower, which is a major advantage of choosing a personal loan over a credit card.

Should I pay off my credit card or personal loan first?

You should keep paying regular EMIs on your credit card as well as personal loans. However, if you cannot afford to pay both, it is advisable to pay the credit card first and then the personal loan. It makes the most sense to make payments on the debts with the highest interest rates. You’ll find that, in general, credit cards will have higher interest rates, so paying those sooner rather than later can save you in interest.