Some of the fastest ways to acquire funds when you need them most is to get them via personal loans. Additionally, a fruitful way to get your hands on some money in times of emergency or when you need it, is through a loan against a credit card. Both these methods resemble each other in the fact that they are unsecured loans.
This means that when you apply for a personal loan, or try to get a loan against a credit card, there is no security/collateral required from the borrower. These loans usually come with a rate of interest that remains fixed throughout the loan tenure and there are no prerequisite conditions of use on the amount that is sanctioned by the lender. Nonetheless, when you are comparing these two methods, you have to consider certain aspects of each type of loan. This will help you decide which loan to take.
The Rate of Interest
Experts suggest that loans taken against credit cards are not the best kinds of loans to take simply because the interest charged on loans is high. Compared to the interest rate for personal loan, credit card interest is significantly higher. For a personal loan, the interest rate is typically in a range from 10% to 24% per year. For credit cards, it can go up to 25% to 30%. Interest rates are determined as a result of:
- Credit profile (for a credit card)
- Payment history
- Job profile (salaried/unsalaried)
In the case of a loan against a credit card, if you have a poor credit history or have defaulted on payments, you stand to be charged a higher rate of interest.
Eligibility Criteria
When lenders evaluate applications for loans, they take several factors into consideration. To apply for a personal loan or a loan against a credit card, you have to:
- Have creditworthiness
- Have no other loan repayments outstanding
A loan against a credit card is a pre-approved debt amount issued by a credit card company to its customers and is based more on history of card use, spending patterns, and other factors related to the credit card, and not based on creditworthiness as determined by income of the individual.
Loan Amount
Loan amounts disbursed by banks and lenders when you take personal loans can range from Rs. 25,000 to Rs. 50 Lakhs. This is a huge amount. On the other hand, loans against credit cards are restricted to cash limits of the credit card itself. The cash limit of your card depends on the type of card you have. Flagship cards have high limits while regular cards have lower limits.
To End With
By all accounts, a personal loan is a favourable way to avail of a loan than one taken against a credit card. Credit cards have higher rates of interest as well as limits on loan disbursal amounts as determined by the card you have. It’s a good idea to find out more about this at Finserv MARKETS, where you get a good source of knowledge about loans.
