Both personal loans and loans on a credit card are unsecured borrowing options that individuals resort to when a financial emergency arises. At least the following statistics indicate the same.
- The Indian personal loan transactional value is forecasted to grow at 37.8% by 2025.
On the other hand,
- The Credit card market in India is expected to grow by more than 25% by 2025.
While these advances are growing simultaneously, individuals can avail of any of the two to mitigate their financial requirements from time to time. While the rise in disposable income is one reason for personal loan growth, online and cashless transactions are the primary drivers of the credit card boom.
However, it becomes vital for individuals to conduct personal loans vs credit card loan study to make the right financial decision. Before that, they should know the definition of these credit products.
What is a personal loan?
It is a collateral-free advance that lenders offer to eligible candidates. Such credit does not arrive with any end-use restrictions. Individuals can use the funds for any of the following purposes.
- Medical emergency
- Financing luxury travel
- Funding home renovation
- Financing study abroad
- Consolidating debts
Besides these, they can also utilize personal loan funds for any short-term financial emergency and finance big-ticket purchases.
What is a credit card loan?
Credit cardholders can utilize their payment card during financial shortfalls and avail of a loan on the unused credit limit of the card. They have to repay the same within a specific tenor.
Usually, a credit card loan is just another form of personal loan for doctors with a slight difference. Hence, individuals first need to decide which personal loan vs credit card should they get.
Differences between personal loans and credit card loans
Following are some of the pointers of personal loans vs credit card loans that individuals need to consider.
1. Verification process
Individuals can avail of credit card loans without submitting any additional documents. However, they have to avail of the loan with the same lender who has sanctioned the card in the first place.
On the other hand, individuals need to submit some necessary documents when they apply for a personal loan. Moreover, the applicants also need to have at least a 750 and above CIBIL score for a personal loan.
2. Loan amount
Since a credit card loan is available on the unused credit limit of the card; the available loan amount is lower than a personal loan. In the case of a personal loan, individuals can apply for a substantial amount with feasible terms.
Top financial institutions like Bajaj Finserv offer a personal loan of up to Rs.25 lakh with minimal eligibility and documentation.
They also extend pre-approved offers that expedite loan availing and make it hassle-free. Such offers are available on various financial products like personal loans, business loans, credit cards, and several others. All you have to do is enter your name and contact number to check your pre-approved offer.
3. Tenor
The tenor of a credit card loan is comparatively much shorter than a personal loan. For instance, individuals may have to repay a credit card loan via only 3 EMIs within their due credit card bill date.
Personal loans come with a flexible tenor of up to 60 months with easy terms. Thus, you need to find the right personal loan tenor that works for you.
4. Interest rates
Credit card interest rates are generally higher than that of personal credit. Moreover, if you fail to repay the loan, the interest accrual is high enough to make you fall into debt-traps real soon.
- As per the RBI report, credit card debt in India reached more than Rs.1 lakh crore in the first 5 months of the financial year 2020-21.
On the contrary, personal loan interest rates depend on the eligibility of borrowers and the lender concerned.
Therefore, individuals need to make a detailed study of personal loans vs credit card loans to make an informed decision. Moreover, one should also know when it is a good idea to avail of a personal loan, in case one opts for this credit.
