Cash crunch is a problem that you can come across at any given point in time. Most of the times, such scarcity of the required amount of money makes people unable to achieve specific targets in the form of buying a house or a car, pursuing higher education, making some purchases or meeting some immediate financial requirements. In such situations, people often arrive at a juncture when they have to decide between credit card loan vs personal loan.
But here are ways to ascertain what would suits you – personal loans or credit card loans? Watch out!
1. Interest Rates
The most important thing that comes to the mind of a borrower while taking a loan from an external source is the interest charged against the principal amount. Generally, the interest rates charged by lenders for personal loans are lower than interests charged when people apply for credit card loans. Thus, in gist, it can be said that in between credit card interest rate vs personal loan, you will find that interest rate for the former is always higher.
2. Customization of Interest Rates
When you apply for a personal loan from any recognized financial institution, you get an option for customizing your interest rate!
Basically, the borrowers get two personal loan options; one is secured loan and the other one is an unsecured loan. In case of secured loans, the loan amount that is being taken has to be backed up by a fixed asset as collateral. This fixed asset can be property or a fixed deposit.
When an unsecured personal loan is taken, the borrower does not have to provide any collateral. Since the latter option involves more risks on part of the lender, it comes with greater interest rates as compared to secured personal loans. Thus, the borrower gets a scope of customizing the interest rate on the money being taken as loan amount by selecting from either of the options.
In case you choose a credit card, such options will not be available to you. Hence, you have to agree with the interest rate that is affixed by the lending agency.
3. Repayment Schedule
When you take loans from external sources, you usually remain eager to know about the repayment schedule. When a personal loan is chosen over credit card loan, you always get a fixed repayment schedule. In simple terms, it means that personal loans always come with a fixed end date for payment of the EMI.
When you choose credit card loans, you have no other choice but to wait until the time when the invoice for payment is raised by the financial institution. Although this end date of repayment comes after a span of a month, usually the date is not fixed. Therefore, appropriate budgeting becomes difficult when you take credit card loan.
4. Paperwork Involved
The third factor that makes borrowers compare personal loan vs credit card loan is the paperwork involved in each of the processes. You might be doing that as well.
So, for your information, the paperwork is much more for a first-time borrower in case of a personal loan. Basically, you have to furnish a series of legalised documents as your proof of identity, address proof, a source of income, and so on. Be prepared for the worse; the time required for sanction of the loan can also take some time.
When you consider credit card loan in replacement, you get some relief. The paperwork is less and simplified when you borrow money against credit card application. The loan amount will also be available to you at a comparatively much faster pace.
Nevertheless, it has to be admitted simultaneously that this particular aspect of credit card loans often increases the affinity of borrowers to become spendthrift and overspend!
5. Option for Part Payment
Generally, you will not get any option to make part payment of the lump sum amount that you take from the lending agency when you opt for personal loans. However, the few agencies that provide this option simultaneously, make it clear that this part payment can only be made after a minimum span of one year.
A relief in case of credit card-based loans is that there are no such stringent rules regarding part payment.
6· Missing an EMI
In general, you will not be penalised heavily by the providers of personal loans if you miss an EMI or two. In most such cases, the borrower can make up for the fault by paying the EMI for a month extra after the end date of debt repayment expires. At other times, a nominal interest rate is levied on the EMI amount that is paid regularly by the borrower as a penal action.
However, be alert because making repeated defaults can create a negative impact on your credit score. Eventually, future personal loan application might be at stake. In fact any credit card
In case of credit card loans, missing an EMI can make you face dire consequences. You might be liable to pay a substantial penal amount in which complex interest rate will be calculated on the principal amount that has been originally taken.
7. Choosing the best option
When you compare credit card loan vs personal loan, you will find that each of the options comes with its own set of advantages and disadvantages.
Broadly speaking, credit card loan is best suited for short-term projects spanning a month or so. On the other hand, a personal loan is the best option for long-term projects like home improvement or property purchase because the loan repayment schedule will span for no less than six months to a year on an average.
Again, credit card loans are better than personal loans in instances when you need quick money without going into much paperwork.
To sum up, we can suggest that the loan that will be best suited for a borrower depends chiefly upon personal preferences and intended end use.