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About Loan Against Credit Card

We all know about personal loans and the reasons why we may require one. However, many of us are not aware that there are various kinds of personal loans apart from the direct ones. Loan against credit cards is one such type of personal loan which allows you to borrow money against your credit card.

A credit card is an electronic card which allows you to make payments in excess of your usual spending means. You enter into an agreement with a bank which makes these payments on your behalf and you have to repay the bank on a pre-determined date. Normally, the banks do not charge interest on the card if you repay on or before the due date, but if you fail to make the payment, you will have to pay interest.

Through a credit card, you can make an online or offline payment, for amount permitted within your credit limit. However, many a time there is an urgent requirement of money. In these cases, you may want to go for cash withdrawal on your credit card. But hold on, there is another way to meet this urgency. You can opt for loan against Credit card. Cash withdrawal against credit card may solve your immediate problem, but the quantum of money received will be limited and the rate of interest will be high. Hence, we recommend you not to opt for this. Loan against credit card charges an interest rate similar to that of personal loans and you may be eligible for a larger loan amount.

Low interest rate, a higher amount of loan and quick disbursal are some of the factors that give an edge to loan against credit card. Once your loan amount is approved, you will receive it either through a demand draft issued by a bank or through an ECS transfer to your account.

Loan Against Credit Card
Loan Against Credit Card

What are the features of loan against credit card?

  • Loan against credit card is an unsecured personal loan which you can apply for any time when you need instant cash.
  • Most of the loans against credit card is pre-approved and you do not need to undergo additional documentation process. Hence, you receive the money instantly.
  • Repayment facility through EMI which allows you to pay back the borrowed amount in monthly instalments as decided between you and the bank.
  • Some credit card issuers allow you to avail loan that exceeds your credit limit
  • You can also use Balance Transfer on EMI facility if it is permitted by your bank. Through this facility, you can transfer the outstanding balance on other credit card to another credit card to repay the latter’s EMI.

What are the advantages of loan against credit card?

The biggest advantage of loan against credit card is the fact that you do not have to go for additional documentation or collaterals to avail loan on credit cards.

  • You have the flexibility to repay the loan based on your convenience. The EMI facility allows you to plan your financial commitments ahead of time and you do not feel a sudden burden.
  • There is a requirement of guarantors or post-dated cheques when availing for a loan against credit cards.
  • The interest on loan against credit card is similar to that of personal loans. On the other hand, the interest on cash withdrawal against credit card is as high as 36% p.a.
  • Nowadays mostly all banks provide credit card, hence it comes in very handy in cases when you suddenly need cash.
  • You can enjoy flexible loan tenures for loan against credit cards. The maximum tenure for loan against credit card is 24 months.

Please note that loan against credit card is not offered to all customers who have a credit card. This loan is only available for someone with a good credit history. If you have a good credit history, it is possible that your credit card gets upgraded from silver to gold or platinum and you can get access to better loan facility against the credit card.

Interest rate and charges on Loan Against Credit Cards

In India, personal loans have a higher interest rate than that of a car loan or a home loan. The interest rates range from 12% to 24% p.a. Other factors that influence the interest rates are the category of card i.e. Gold, Silver or Platinum and your credit history. To enjoy good terms of loan against credit cards and a favourable interest rate, it is highly important that you maintain a good credit history throughout. Apart from interest rates, there is also a nominal amount of processing fee that is charged.

What are the eligibility criteria for a loan against credit card?

Usually, most banks offer loan against credit card to both old and new customers. For being eligible for availing loan against Credit cards, you must fulfil the following criteria :

  • It is mandatory to have a credit card to avail this loan.
  • You must have a strong credit history and a high credit limit. Credit cards are offered to customers who have had a spotless record of credit repayment. The bank performs a thorough credit assessment before approving your loan to ensure your ability to repay the loan on time.
  • Any customer in the high-income bracket is also eligible to apply for this loan. Moreover, if your income has increased from the existing level, you are also eligible to upgrade your credit card to gold or platinum from silver.
  • You can check further on your eligibility for loan against credit card by visiting the nearest branch of the bank or through net banking. In most cases, the amount of loan against credit card is higher than that of cash withdrawn against the credit card.

Documentation required for Loan Against Credit Card

The documents required when you apply for loan against credit card are the same that you would normally require while applying for a credit card. These include :

  • Address proof copy such as electricity bill, gas bill, telephone bill, driving license, passport etc.
  • Identity proof such as Aadhar Card, PAN card, Passport, driving license etc.
  • Payslip for last 3 months and office identity card for salaried employees
  • For self-employed professionals, the Income Tax returns for the last 3 financial years.
  • 2-3 recent passport size photographs.

Frequently Asked Questions: Loan Against Credit Cards

1. What is loan against credit cards?

Loan against credit card is an unsecured personal loan that can be availed if you have a credit card. You can get instant cash in emergency situations with zero documentation process.

2. What is a credit limit?

A credit limit is the maximum amount that you can spend through your credit card. This limit is determined by the banks based on your credit history, repayment track record, spending habits, and annual income. The banks do a periodic review of these factors from time to time and may revise your credit limit if things are found favourable.

3. What is good credit history and why is it important?

A good credit history means the track record of an individual about how well he has handled his previous loans, the repayment record, his ability to handle multiple loans etc. If you have a good credit history, you can seek favourable terms on your credit card and avail a Loan against credit card at lower interest rates.

4. What is the difference between Loan against credit card and cash withdrawal against credit card?

Cash withdrawal against credit card also gives you instant cash but the quantum of loan is less than that of loan against credit card and the rate of interest is relatively higher. It can be as high as 36% p.a. The limit of cash withdrawal against credit card is pre-determined by the bank.

5. Are there any other charges levied apart from the interest rates?

Apart from the interest rates, banks also charge a nominal processing fee. The processing fee varies across banks.

6. How should I apply for loan against credit card?

You can apply for a loan against credit card through net banking, telephonic call or by simply visiting your nearest bank branch.

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