A credit card has a revolving credit scheme, which means you can borrow as and when you need. On the other hand, a personal loan is a one-time lump sum loan that includes repayment in installments monthly. There are situations in life when individuals fall short of funds to meet even daily expenses and emergencies. Especially a crisis like the ongoing pandemic, that left us in a complete financial void with an economic downfall. To handle regular expenses, individuals take up borrowing through a credit card or a personal loan. Both forms of loans are flexible and can be used to meet any kind of need without any restrictions.
However, before you delve into choosing one between the two, there are many aspects that you need to confirm. A credit card and personal loan have only one thing in common, and that is usage flexibility. If you need the right form of borrowing, you must compare the two options and then settle for the best form of borrowing. Take a look at a detailed comparison between personal loans and credit card loans.
What is a credit card loan?
A credit card is a payment card that comes with a pre-approved loan amount based on the credit eligibility of an individual. This card comes with a credit limit that can be utilized for any kind of purchase or expense. The rate of interest on a credit card loan is very high, and it is considered the most expensive form of debt. However, this is a good option to meet expenses when you do not have enough cash. The pre-approved credit limit makes it easy for you to make purchases beyond your income. The bill is generated once a month according to the billing cycle. If the amount of the bill is high, there are high-cost EMI options as well. It is flexible but very expensive in the long run.
What is a personal loan?
A personal loan is a one-time disbursement of a certain amount of money from a loan provider to the borrower. The loan sanction amount depends upon the eligibility of the borrower. It is a flexible form of loan and very affordable as compared to other forms of loans. The maximum and minimum amount depending upon eligibility and financial institutions. It is a good choice for small and big expenses as well. The rate of interest, along with other charges, can be affordable if the borrower meets all the criteria in the right order. It is a completely unsecured form of the loan without any collateral or security. The repayment is done in easy monthly installments.
Personal loans vs credit card loans
Affordability: A Personal Loan is a very affordable form of a loan. The personal loan interest rate is very low and the charges are minimal. On the other hand, a credit card is the most expensive form of a loan. The rate of interest is the highest as compared to any other form of a loan. If you have too many credit cards, the bills will become a burden due to the high rate of interest.
A personal loan is meant for small and big expenses. On the other hand, a credit card is good for small and petty expenses in daily life. It is not a good option for meeting large expenses like weddings, medical emergencies, or home renovations. However, a personal loan can be used for big and long-term expenses. The need should decide the type of loan that you should go for.
Available credit: A credit card is a revolving credit system whereby on paying the bills, you get back the available credit limit that was utilized. However, that is not the case for a personal loan. In a personal loan, you need to keep paying the EMI till the debt balance becomes zero. After that, if you want some funds again, you need to again apply for an instant personal loan. However, you can get a pre-approved personal loan when you meet the personal loan eligibility by repaying your past loan within tenure.
Debt burden: A credit card loan becomes a burden because you keep borrowing from the revolving credit limit and it becomes a burden. The rate of interest is high, so the bills keep increasing with added charges and fees. A personal loan is a one-time amount that you need to repay, and only then do you get another loan. This does not become a burden in the long run.
An instant personal loan is helpful for immediate large expenses, while a credit card is good for small and restricted spending habits. Use a personal loan calculator at the time of borrowing. It will help you compare and then choose the right loan product.