Demand for a personal loan is always on fire. Personal loans are surely quite liked however it has its own set of pros and cons. Few opt for a credit card loan which is quite comparable to a personal loan. There are major differences and commonalities both. Interest for e.g. is the primary most criterion for considering a loan. Most institutions offer personal loans at interest rates between 5-20%. While credit loans between 10-18%.
The question is how do you arrange money when an urgent requirement falls upon you? An old assumption believed that when you have sufficient funds, you do not head towards personal loans.
You can choose to either make a transaction using a credit card or just straight away take a loan. However, a thorough comparison is quite needed to assess the two properly. Let’s take up the concepts, one by one:
- Personal Loan:
A personal loan can be defined as an unsecured loan which is used for a handful of purposes (medical emergencies, owned houses, long vacations, closing old accounts etc. The interest charged on personal loans is mostly high due to its inherent nature.
- Credit Card Loan:
Loan sanctioned on a credit card is pre-approved and does not require any papers. It is the fastest way to get quick credit. Under this option, you can utilize your credit card against the loan taken. This concept is different from what we call cash withdrawal.
Credit Card Vs Personal Loan
Personal loans and credit card loans have a lot in common. However, they are not exactly the same. Personal loan and loan on credit card seem similar but are not identical.
- Documentation: A personal loan typically needs approval from a big bunch of documents and takes longer than usual. A loan based on an existing credit card needs no document and easier to procure.
- Interest:It is extremely important to consider interest when taking a loan decision. Typically, the rate of interest on the loan is about 10- 25% whereas its 10-15% on the credit card loans.
- Installments: A credit card loan can be availed at uniform interest rates while personal loans at reducing balance rates.
Also read: Mini Cash Loan- Quick Finance for Your Needs
A flat rate of interest is applied on the principle amount and remains consistent throughout the tenure. However, this is based on a reducing balance concept, meaning the principle declines and interest rises. Precisely in this case, the interest outflow goes down and inflow goes up.
Some additional pointers:
- For a personal loan, you do not have to be an existing customer. Whereas for a credit card loan, an earlier association with the bank is necessary. The credit card needs to be of the same bank.
- A personal loan is a ‘no collateral’ loan: Following suit is the credit card loan. No assets are required to be mortgaged.
- Credit card loans can be procured for shorter span of time; while personal loans are typically taken for longer terms.
- A credit card loan is generally opted when the it’s a small requirement while personal loans fulfill bigger expectations.
To conclude, it would be true to say that choice of loan is based your financial requirements, tenure and how quickly it is required. Based on your need, it is important to make the best possible choice!
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