We all like a little extra cash. What’s better than having financial stability, without worrying about money? Personal Loans are a great alternative which can help individual fulfill their desires without compromising with their savings. Personal Loan can be applied for multiple purposes which can include wedding preparations, going on a vacation, or modifying your car. They are usually short term loans which only demand a reasonable interest rate.
Another popular loan or debt method which is used by people to make advance purchases is Credit Card loan. This is not promoted as equally as a Personal loan in the country. Credit Card usually has a higher interest rate and can promote users into buying unnecessary goods.
What is Personal Loan?
A personal loan is a form of an unsecured loan, which is usually applied for short-term financings like festivals, wedding, house repair or any other medical requirements. Personal loans are sanctioned by the financing depending on the creditworthiness and financial stability of the borrower or applicant. Repayment for such loans is usually processed through fixed EMI’s (Equated Monthly Installments). Personal Loan Interest Rates are usually higher than other loans because of the uncertainty involves in such loans.
It is an instant solution to get emergency money, which can be used for entertainment purposes or financial needs.
What is a Credit Card Loan?
Credit Card Loan or debt can be defined as an unsecured liability, which is offered by financing institutes as a short term postpaid loan facility. Using this facility, an applicant can technically make as many as purchases as he wants through his credit card, till a certain limit set by the finance, creating a debt on the applicant. This debt is incurred with an interest rate until the grace period of the card gets expired.
Credit Card Loan, have a high-interest rate and considered as the worst type of debt. Credit Card encourages users to make smaller minimum payments or EMI’s on their purchasing, which automatically forces them to use these cards for a longer period, with a high-interest rate, which can get the applicant in a depressing financial situation.
Credit Card Loan V/S Personal Loan
- Applying Process
Getting a Credit Card from your bank involves a much more quick and easy process. All you have to do is apply for a credit card online, or in your branch and you will get your card within 7 working days from the date of application submission.
Well, applying for a personal loan is not that simple and might take around a couple of weeks depending on the amount. You will also be required to submit all your financial documents including your identification proof. If you don’t have a stable source of income, then it’s unlikely that any bank will sanction your loan.
- Financial Stability
A personal loan is something that an applicant applies for when he genuinely requires something. When you apply for a loan, you already have a list of things which you want which the amount. Whereas, most credit card users, don’t end up thinking about what they want and why they want it, but end up purchasing an unnecessary good. These random purchases keep adding on to their card, creating a huge debt, which can get the user in an unstable financial condition.
- Interest Rates
Credit Card Loans have a higher interest rate, as it promotes small purchase amounts which run for a longer period. Credit Cards can be seen as a scam that intends for the bank to earn more.
While personal loan can be seen a social offering to help people grow. Most banks incur only 11 to 13 % of interest rates on personal loans, which is really reasonable compared to what you will be paying on your credit card bill.
- Amount of Loan
An applicant can apply for almost 20 times his monthly income as a loan if he/she falls in the eligibility criteria. This amount usually ranges from Rs. 25000 to 40 Lac.
Credit Card loan, doesn’t offer such huge limits. Its maximum limit can be set based on your annual income, which can go from 10,000 to 1 – 10 lac.
- Suitable Uses
Credit Card loan is definitely a good alternative to investing in smaller purchases, like electronics etc., whereas personal loan can be used for making an expensive purchase like a car TV or making home improvements.
Most online and offline retailer today offer one or other form of deal or offer points if a customer is making the transaction through a credit card. These points can be redeemed and used to gain discounts in the future. A personal loan doesn’t offer any such reward points.
Credit Card is a great alternative if you are looking for borrowing money for a short period of time, while a Personal loan is a suitable method if you want to borrow a larger amount of money, which you want to repay over a long period.