There could be times when you might face a fund crunch in your day-to-day life. While reaching out to relatives for assistance may seem easy, it can impact your social image if you can't repay them promptly. Hence, it's better to avoid such a situation. Instead, the next best alternative is applying for a bank loan.
For a quick access to funds, the two commonly considered choices are Credit Card Loans and Personal Loans. Each of these has advantages and disadvantages. The decision between a Credit Card Loan and Personal Loan should be based on your financial circ*mstances and requirements. A Credit Card Loan is more accessible, but it comes with higher interest rates. While a Personal Loan may offer a comparatively lower interest rate, but could be more challenging to qualify for.
In this blog, let us try to understand the differences between a loan on a Credit Card and vs Personal Loan.
What exactly is a Credit Card Loan?
Credit Cards are commonly used for your day-to-day expenses, providing cardholders convenience and ease of transaction. As a cardholder, you can choose the amount you want to repay, provided you meet the minimum payment requirement.
When you opt to pay only the minimum amount, your outstanding balance automatically transforms into debt. This debt incurs late fees plus interest rates.
When you compare Credit Cards vs loans, Credit Cards require no documentation for obtaining loans and can be used freely at any time and place. Personal Loans come with additional charges such as processing fees, early settlement fees, and more.
Credit Cards also offer rewards like cashback, air miles, and discounts. However, these incentives alone should not be the sole reason for choosing a Credit Card for a loan. If you anticipate problems repaying the loan promptly, a Credit Card may not be the most practical choice.
What is a Personal Loan?
A Personal Loan is a type of unsecured of loan that you can use for various purposes such as funding higher education, purchasing appliances, financing a vacation, covering medical expenses, and more.
Personal Loans are relatively easy to obtain and come with flexible repayment terms that span from 12 to 60 months. Opting for a Personal Loan can be a better choice due to its inherent characteristics such as fixed interest rates and a reasonable repayment period.
- A Personal Loan provides you the advantage of a more extended repayment period, allowing you more time to settle your debt comfortably.
- You can benefit from a consistent and predictable monthly repayment amount, simplifying budgeting and financial planning.
- A Personal Loan often comes without stringent minimum deposit requirements for opening an account, making it more accessible for you to access.
Also Read: Know all about Personal Loans
Credit Card vs Personal Loan
Here are the major differences that exist between a loan on Credit Card vs Personal Loan:
| Credit Card Loan | Personal Loan | |
|---|---|---|
| Type of Loan | A Credit Card loan is an unsecured loan that requires no collateral of security. | A Personal Loan is an unsecured loan. However, you need to prove your capability to repay it. |
| Documents required | It is a pre-approved loan, there is no documentation needed to avail of it. | Personal Loans require KYC documents as proof of your identity and residence.They also require financial proof such as bank statements, salary slips, income tax returns, etc. |
| Loan Amount | You commonly use Credit Cards for your everyday expenses, enjoying the convenience they offer. Credit Card loans range from ₹50000 to ₹2.5 lakh and are determined by your card's total limit and the unused portion of it. | Personal Loans offer a wide range of options, from as little as ₹50000 to as high as ₹25 lakh for a 24x7 Personal Loan that is available instantly, depending on your needs and eligibility. |
| Credit card vs personal loan interest | The interest rate significantly affects your Equated Monthly Instalment (EMI), with Credit Card loans usually carrying interest rates in the range of 12-22%. | The interest rates for personal loans fall within the range of 15-26%, but there are opportunities to lower the interest through balance reduction options. |
| Repayment Timeline | Due to their smaller amounts, Credit Card Loans come with shorter repayment terms than other loans. | Personal Loans are known for their flexibility, allowing you to choose a longer repayment period of up to 5 years or more. |
| Processing Time | With your KYC details already on record as an existing customer, Credit Card Loans are approved and disbursed almost instantly by the issuer. | Personal Loans are faster to process than many other forms of credit, like Home Loans. However, the lender may take a few days to verify your documents and complete the application process. |
Personal Loan or Credit Card Loan: Which is better?
There is no definite winner when comparing Credit Card Loans to Personal Loans. Credit Cards offer the convenience of paying for expenses and settling the bill later, while Personal Loans offer the choice of a larger loan amount.
Although both are unsecured loans, Personal Loans have a slightly higher interest rate. However, they compensate for this with a more extended repayment period, making your monthly instalments easier to handle.
How to apply for a Personal Loan?
Here are the steps you can take to apply for a personal loan:
- You can initiate the loan application process online or offline. Opting for the online route is generally more convenient and quicker and offers enhanced safety, as it eliminates the need for physical interactions.
- After applying, it proceeds to the next stage, where a representative from the lending institution may arrange a meeting with the applicant. A bank representative may conduct a phone or video interview when applying online. However, if you are pre-approved for a Personal Loan, you can skip this step altogether.
- Once the application is approved, you must submit essential documents such as income proof, employment details, bank statements, age verification, address proof and PAN card to the bank. Mismatched or inaccurate information can lead to delays or even rejection of the loan application.
- On successful verification and approval of all submitted documents, the Personal Loan is ready for disbursal. Online applications result in quicker processing, with funds disbursed within days. Offline processes may take up to two weeks to complete. Pre-approved Personal Loan applicants can enjoy expedited disbursem*nt, with funds transferred into their account within 72 hours, provided all documentation is in order.
How to apply for a Credit Card Loan?
Securing a loan using your Axis Bank Credit Card can be accomplished through various methods:
- Axis Bank Credit Card Loan via Missed Call
Give a missed call to 1800 419 0230. Axis Bank's customer service team will reach out to you. They will guide you through the loan application and verification process. - Axis Bank Credit Card Loan via Customer Care
You can contact Axis Bank's Credit Card customer care team by dialing either 1860 500 5555 or 1860 419 5555. Once connected, you will be directed by an IVR system to complete your loan application seamlessly. - Axis Bank Credit Card Loan via Internet Banking
a. Log in to your Internet banking account using your credentials.
b. Navigate to 'Accounts & My Credit Cards.
c. Select 'Instant Loan' and follow the prompts to submit your application effortlessly.
Also Read: How to get a Credit Card in 3 easy steps
Frequently Asked Questions about Personal Loans vs. Credit Card Loans
Is a Credit Card loan considered a term loan?
No, a Credit Card loan is not classified as a term loan. Term loans involve receiving a lump sum of money upfront in exchange for specific borrowing terms. These loans are usually designed for established small businesses with solid financial records.
Will Personal Loans impact my credit score?
Personal Loans generally have a positive effect on your credit score. In contrast, using Credit Cards extensively can lead to a higher credit utilisation ratio, potentially hurting your credit score.
Is it better to take a Credit Card loan or a Personal Loan?
Determining what's "better" depends on your specific needs and circ*mstances. If you require a larger sum of money, a Personal Loan may be the better choice. However, if you need immediate access to funds and cannot afford to wait, a Credit Card Loan might be the most suitable option for you.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
