Personal Loan or a Credit Card?
Personal loans and credit cards both are the financial tools which provide you immediate access to funds. But it’s quite difficult to understand which one is a better choice.
Credit Cards are quite convenient to have. A credit card has a maximum limit within which one can get everything they want in just a swipe. On top of this, there are several other facilities associated with a credit card. These facilities include cashback offers, reward points, discount on several uses, etc. Most of us are always confused and are not clear whether to use a credit card or not. However, when used responsibly and paying the bills on time using a credit card is fun.
On the other hand personal loans are also yet another source through which you can get money. But, these are less immediate than a credit card.
But when it comes to risk, personal loans are less prone to risk as compared to a credit card. Another advantage of having a personal loan is that it comes at a low-interest rate as compared to a credit card.
All these points make us think that which one is better to have, a personal loan or a credit card?
Scenarios where a Personal Loan is Better than a Credit Card
When You Need Cash Upfront
Both credit cards and personal loans are financial tools which can provide you money. But in case of the credit card, we can get a fixed amount of limit which is within the credit limit of the credit card. When a requirement arises where the amount needed is ore that the credit card’s limit then a personal loan is the best to us in that scenario.
By opting for a personal loan you get immediate access to funds. The amount which you can get approved for depends on the borrower’s eligibility which includes, borrower’s age, income, employer and credit history. This way you can get your desired amount easily.
When you Want to Have a Scheduled Repayment Structure
When you use a credit card, the EMI charged are not necessary to be paid entirely in a month. There are minimum payments associated with the uses, which are essential to be done. For example- you used your credit card and sent ₹50,000, and your EMI per month is ₹ 5,000. If it would have been a personal loan, there was no option other than paying ₹5000 per month as EMI. But when it is a Credit card payment, you can also pay the minimum monthly repayment required. Which will be less than ₹5000. Doing these pills a huge amount, which becomes difficult to repay in some time.
When you want it at an Affordable Interest Rate
Credit cards are always costlier, the interest rate charged on the use of credit card varies from 24% to 36%, whereas the rate of interest charged against a personal loan varies from 10% to 20%. The difference is huge which makes the personal loan a way cheaper than a credit card. A credit card may provide you money just by a swipe but, it can be less than your requirement and secondly, you will be charged a lot against it.
When you Can’t pay the Borrowed Amount in Less Time.
As mentioned in the above point, when you borrow money using a credit card the interest charged is high. Hence, you need to repay the borrowed amount in less time as when repaid in a long time it will be much costlier. On the same hand credit card issuer also doesn’t provide you a long time to repay the borrowed amount. On the other side personal loan comes with a flexible tenure option, which varies from one year to five years. So, when you know you can’t pay the borrowed amount in less time you should go with personal loans.
When you Need to Consolidate other Debt
Debt consolidation means using a new loan to repay your previous loans. The interest rate of credit card is high and the amount one can get is also limited. Hence a credit card can never be used to consolidate other debts.
Whereas personal loans are the best option for one when it comes to debt consolidation. The reason is- you can get access to a huge amount of funds through at an affordable rate. On the same hand, there is no limitation on the use of the money borrowed.
When you are Worried about your CIBIL
Default in the payment of any kind of loan can affect your CIBIL adversely. And as the interest rate of credit card is high, the EMI associated with it automatically becomes high. In such a case, the chances of defaulting with EMIs also increases. It can be due to any unwanted reason or in case of emergencies. But when you have a personal loan, the chances of default is comparatively less, as it is auto deducted from your salary account every month.
The above-mentioned scenarios are the best examples when personal loans are a better choice than the credit card.
