There are a number of loans offered by the government and the financial institutions letting us perform activities requiring substantial funds. However, when it comes to higher education, marriage, down payment for your new house, personal financing, etc., there emerges a demand for personal loans, which helps us immensely in financial emergencies. There is also another alternative to personal loans known as credit card loans.
Let us look at both of them:
1. Both are short term unsecured personal loans. Both have similar interest rates mostly high as they are not issued against any security.
2. These loans can be availed in any financial emergency and pre-closed at any time.
Today processing personal loans are easily done online. Traditionally, the applicant had to visit a bank with the loan application and indulge in a lot of paperwork, with a long wait before the loan would be approved. But now within just a few hours, a loan after its approval can be disbursed to the bank account.
Credit card loans are instant loans as the credit score and other checks are already conducted while issuing the card. In fact, you have a fixed credit limit. The procedure is simple; you call customer support and ask for the approved credit limit. You either swipe or get a DD from the credit card company within a short time.
How Does Personal Loan Differ from a Credit Card Loan?
The two being similar, there persists a huge confusion as to which one is better. Let us find out the differences between them to comprehend:
1. Processing fee and pre-payment: the personal loans have a 0.5-1% processing fee whereas the credit card does not have any. There are also pre-payment charges varying from 2-5% on the outstanding balance. There are no pre-payment charges on credit cards letting you close them anytime you hold surplus cash.
2. Interest rates: Credit Cards may offer 0% interest initially and later 1.5% to 2.5%. On the other hand, personal loans charge 12-18% interest rates. It can be high based on the customer profile
Be Cautious With Credit Spending
Though the interest rates for credit cards seem to be attractive on a monthly basis, they are however charged annually making the interest go higher than personal loans. Any delay on a credit card loan might require you to pay both EMI interest and the outstanding amounts. Most credit cards hold flat interest rates; you tend to pay interest for the entire loan period.
Keeping these points in mind, choose the most optimum source of borrowing. Though personal loans seem to be tempting, always prioritize your expenses on existing funds later moving to loans.