Credit Card Loan vs Personal Loan: Difference Explained

When you’re caught in a situation where an urgent need for cash comes out of nowhere, you don’t always have to break into your savings. There are many lenders out there who can offer you the funds you need.

Among the different sources of credit so easily available in the market, personal loans and credit card loans seem to be a popular choice among borrowers. And while they both serve the purpose of providing instant credit, they have different features and benefits.

Credit card loan vs personal loan: Want to know which one is better suited for you? Read this blog and find out.

What is a Personal Loan?

The money you borrow from any lender to meet your financial requirements is known as a personal loan. There are many banks and NBFCs in the market that can provide you with the same. You can use your personal loan anywhere you like and pay it back in installments, in the form of EMIs.

Read More: Why Opting For an NBFC Personal Loan is a Better Option?

Depending on whether you need to provide any collateral to get a loan or not, there are two types of personal loans: secured and unsecured loans.

Benefits of Personal Loan

1. You Can Get It From Any Lender

Whether you need cash during an emergency or want to fund your travel plans, there are different types of personal loans available to serve your different financial requirements. With easier access to credit due to loan apps, you can get a personal loan at your fingertips.

There Is No Restriction On The End Usage Of The Loan

Most personal loans are unsecured loans. This means that you don’t have to provide any collateral against the money you borrow and can use the loan anywhere you like, no questions asked!

Easy Application And Approval

Say goodbye to endless paperwork and wait time for approval because with digital loan apps, you can get a personal loan by entering your basic details like name, email address, PAN, etc.

Drawbacks of Personal Loans

1. You Could Be Charged With A Higher Interest Rate

There are some charges like interest rates and processing fees associated with taking a personal loan. The interest rate you’re offered on your loan depends on various factors like your credit history, monthly income, repayment history, etc. You might have to pay a high interest on your personal loan, making it expensive.

Read More:
Personal Loan Interest Rates & Charges

2. Potential Late Penalties And Damage To Credit Score Due To Non-Repayment

If you default on your personal loan, you may have to pay a late fee. Consistent default can also lead to other negative consequences like a decrease in credit score and distressing calls from recovery agents.

3. You May Not Meet The Eligibility Criteria Of The Lender, Making The Approval Process More Difficult

Different lenders have different eligibility criteria. If you don’t fall under that criteria, you may find it a little difficult to get approved for a personal loan.

When to Use a Personal Loan?

You can use a personal loan every time you need instant access to cash, for any financial requirement. And with the rapid increase in the different types of loan products available in the market, you can fund your different financial requirements easily.

Need cash during a medical emergency? An emergency loan can come to your rescue. Planning your higher studies? An education loan can fund your course. Want to get away from the hustle and bustle of your city? Take a travel loan to book your tickets to your favourite destination now.

And online loan applications have taken the ease of credit to the next level. With no documentation or paperwork, you can get a personal loan without any hassles.

What is Credit Card Loan?

While a credit card loan is very similar to a personal loan and can help you meet your need for cash, it is only available to credit card holders. This is a pre-approved loan offer extended by your credit card provider. There’s no restriction on the end usage of the loan and you can use this money anywhere you like. Based on your repayment plan, tenure and credit card loan interest rate, the EMI you have to pay is added to your credit card statement. You can save time on your application because your credit card provider will already have your required information and documents.

How do Credit Cards work?

To be able to understand how to take a loan on credit card, it’s important to understand how credit cards work.

Once you are approved by a provider, you will receive your credit card which will be pre-loaded with your approved credit limit.The credit card will contain a card number which is your unique identifier, the expiry date, and your registered name. You can use the limit on the card for any online or offline purchases.

Just make sure you don’t exceed the utilization of 30% to maintain your credit score. You will receive a credit card statement which will contain all the relevant information like your upcoming payments and tenure.

Once you accept or apply for a pre-approved credit card loan from your provider, information like your credit card loan interest rate, repayment tenure, EMIs, etc. will be added to your credit card statement.

Credit Card Benefits

1. Convenient to Use

A credit card is a very simple method of making payments and is accepted by almost all kinds of vendors. Whether you want to make online or offline payments, all you have to do is swipe your card.

2. You Can Enjoy Credit Card Reward Points And Cashback

For every payment you make using a credit card, you can get some reward points for it. Depending on your credit card provider, you can then redeem these points and enjoy benefits like free vouchers, gifts and even travel tickets.

3) Helps You Build Your Credit Score

If you follow the good borrowing practices of paying your credit card bills on time and maintaining your credit utilization to only 30%, it can help you increase your credit score. A good credit score can make you eligible for more premium cards and high-value loans.

Read More: How to Get Perfect 900 Credit/CIBIL Score?

Credit Card Drawbacks

1. You’re More Likely to Overuse Your Credit Card

As easy as it is to meet your financial needs on a card swipe, it’s possible to over utilize it to a level where you max out your credit card. This can potentially damage your credit score and wind you up in debt.

2) You Could Face Some Hidden Costs And Charges

At first glance, a credit card may seem very straightforward. However, you may end up missing numerous hidden costs like joining fees, renewal fees, etc.

3) You May Be Charged High Interest on Your Credit Card

Usually, credit card interest rates are high as compared to personal loans. On top of that, if you miss paying your credit card bill, the interest is carried on top of that.

Credit Card Loan vs Personal Loan

Differentiating Factor

Credit Card Loan

Personal Loan

Process of Borrowing

You can apply for a pre-approved loan offer from your existing credit card provider or a bank. This loan is only available to credit card holders.

You can complete a loan application from any NBFC or bank and get instant access to the money you need.

Eligibility Criteria

You need to be a credit card holder of the credit card loan provider.

If you’re over 18, have a valid PAN card, and have a stable income, you can apply for a personal loan with multiple lenders.  

Lender

Your credit card provider is your lender.

You can apply for a personal loan from any financial institution.

Repayment Process

The EMI amount will be added to your credit card statement.

You can repay the total outstanding loan in monthly instalments called EMIs

Interest Rate Charged

Comparatively higher than a personal loan

Comparatively lower than credit card loans.

Instant Loan On Credit Card Vs Personal Loan: Which One Is Better?

While both credit card loans and personal loans are reliable sources of meeting your financial needs, they are better suited for different people. If you’re someone who already has a credit card and has established a good relationship with the provider, a credit card loan is a quicker and better option. However, if you don’t have a credit card and are looking for short-term funding for your financial needs, there are many lenders who can give you a personal loan.

In fact, one added advantage of a personal loan is that you can compare offers across various lenders and get the best loan terms.

Conclusion:

It’s important to weigh your financial requirements and conditions before choosing between a credit card loan and a personal loan.

Looking for an instant personal loan? With Zype, apply for a personal loan of up to ₹5 lakhs in 5 minutes. Get approved for a loan within 60 seconds and receive the money directly to your registered bank account within 24 hours.

Frequently Asked Question

Which Is Better, Personal Loan Or Credit Card Debt?

While both personal loans and credit card loans can help you meet your financial needs, the better choice between the two depends on your financial requirements and use case.

Which Describes The Difference Between A Personal Loan And A Credit Loan?

While there are many differences between a personal loan and a credit card loan, the biggest factor that sets the two apart is the restriction of application. You can apply for a credit card loan only from your credit provider, on the other hand, you can apply for a personal loan from any financial institution.

Is Personal Loan Interest Less Than Credit Card?

Yes, the interest rate charged on personal loans is comparatively lower than credit card loans.

Is It Wise To Take A Personal Loan On A Credit Card?

While it is wise to take a personal loan on a credit card, make sure you compare loan offers across various lenders and choose a lender that gives you the best borrowing terms.

What Is The Minimum Credit Card Loan Interest Rate?

While the credit card loan interest rate can be different for different lenders, it can range between 2.5% to 3.5% per month. The interest you’re charged also depends on other factors like your credit score, repayment history and monthly income.

What Are The Biggest Benefits Of Using A Personal Loan Versus A Credit Card?

One of the biggest benefits of using a personal loan is that you have to pay a lower interest rate on the borrowed amount as compared to a credit card loan.

How Does The Repayment Process Differ For Personal Loans And Credit Card Loans?

In a credit card loan, the EMI amount will be added to your credit card statement. However, in a personal loan, you can repay the total outstanding loan in monthly instalments called EMIs.

Can I Use A Credit Card Loan For Everyday Expenses, Similar To A Personal Loan?

Yes, you can. Since there is no restriction on the end usage of a credit card loan, you can use that amount anywhere you like.

How Does The Application Process Vary Between Personal Loans And Credit Card Loans?

For a credit card loan, you can apply for a pre-approved loan offer from your existing credit card provider or a bank. This loan is only available to credit card holders. However, for a personal loan, you can complete a loan application from any NBFC or bank and get instant access to the money you need.