Personal loan or credit card loan that suits you best A personal loan or a credit card loan, which is best for you? Achi-News

If you want to make an expensive purchase, should you take a credit card EMI or personal loan? This question comes to the mind of many people. Both loans have their own advantages and disadvantages and both operate with different financial strategies.

If you need money for a large purchase, a personal loan could be the right option. This allows you to repay the loan in a structured way. On the other hand, to take advantage of routine shopping and sales promotions, the credit card option with EMI can be more beneficial.

We can compare these two based on various parameters.

First, let’s talk about the loan limit. With a personal loan, the loan limit usually depends on your income and credit score. This means that compared to a credit card, you can get a larger amount with a personal loan. In contrast, with a credit card loan, you are limited to the credit limit available on your card.

Now, let’s talk about payment. How do you get the loan? In a personal loan, after approval, a one-time amount is credited to your bank account. It may take a few days. In contrast, a credit card loan is available immediately. You can get funds up to your available credit limit instantly.

You can get this amount back by making purchases and converting them to EMI.

Speaking of documentation, when applying for a personal loan, you need to provide essential documents such as income proof, employment verification and identity proof. whereas in most credit card loans no additional documents are needed because you have already provided most of the necessary documents when taking the card.

Now, let’s talk about interest.

The interest rate on a personal loan is usually fixed and is determined based on your credit score and the terms of the loan. This rate can be lower than credit card loans, which have variable interest rates.

There can also be different EMI conversion rates in credit card loans. Another important parameter is the type of loan. A personal loan is an installment loan in which a fixed amount must be repaid with interest within a specified time limit. Whereas a credit card loan is a revolving line of credit where you can borrow up to your credit limit, pay back the amount and then borrow again.

Now, what are the advantages and disadvantages of these two loans.

With a personal loan, you can get a loan for a large amount. The interest rate can range from 10.5% to 24% and the loan period can be from 1 to 5 years. While, the interest on credit card EMI starts from 12.5% ​​and it can vary depending on the bank.

Paying off a personal loan on time can improve your credit score.

The downside of a personal loan is that the interest rate can be higher for people with lower credit scores. If your credit history or score is not good, getting a loan can also be difficult. If you want to repay the loan early, you may have to pay an early repayment fee or a pre-closing fee.

If you count the benefits of credit card EMI, you get an instant loan. There is almost no need for paperwork. This loan can be useful in case of cash flow problems in the short term. High value transactions can be converted to EMI and repayment can be made within 3 to 24 months.

Speaking of the downsides, credit card loans can be more expensive in the long run. Especially if you haven’t paid the balance on time. Since these loans are directly tied to your credit card’s available limit, they may also reduce your ability to make purchases for other needs. Also, your credit utilization ratio can increase and all of this will affect your credit score.

Moreover, due to the easy availability of credit, you can settle for unnecessary expenses that may increase your debt burden.

Whether a personal loan or credit card EMI is better for you depends on your financial situation and your financial goals. While a credit card loan or instant loan is suitable for immediate needs or short-term needs, a personal loan is suitable for long-term needs.

However, when taking out a loan, don’t just think about immediate needs. Also, consider its effect on your financial situation in the long run. Like how it will affect your credit score. It is important to think about it. Only after examining all these factors, decide which loan will suit you.

Published: April 7, 2024, 10:30 am IST