1️. Personal Loan
What is it?
A personal loan is an unsecured loan that can be used for various purposes. It doesn’t require collateral and is based on your credit history, income, and financial profile. Typically, personal loans have fixed interest rates and structured EMIs (Equated Monthly Installments).
When to Consider a Personal Loan:
- If you need a large sum for a specific purpose (e.g., home improvement, medical bills).
- You prefer fixed monthly payments and a structured repayment plan.
- You have a good credit score, which helps secure a better interest rate.
2️. Loan Against Credit Card
What is it?
This is a pre-approved loan based on your credit card’s usage and repayment history. It allows you to borrow up to a certain percentage of your credit card limit. It’s a quicker option as it’s linked to your existing credit limit.
When to Consider a Loan Against Credit Card:
- You need quick access to funds and have a pre-approved credit limit.
- For short-term financial needs, where repayment is possible within a short time.
- You prefer an easy withdrawal process via ATMs, online transactions, or bank branches.
Comparing Both Options
| Category | Personal Loan | Loan Against Credit Card |
|---|---|---|
| Eligibility | Salaried individuals, self-employed, and business owners | Available to credit cardholders with good repayment history |
| Application Process | Requires submitting documents for verification | Pre-approved, instantly accessible through ATMs or online |
| Interest Rates | Fixed rates, based on your credit profile | Generally higher, charged from withdrawal to repayment |
| Approval Time | May take longer due to verification | Instant approval, no waiting |
| Maximum Loan Amount | Based on income and credit score | Limited to a percentage of your available credit limit |
| Repayment Terms | EMI over 1-5 years or more | Typically repaid in full within a short period |
- Choose a personal loan if you need a larger loan amount, prefer structured repayments, and want lower interest rates.
- Opt for a loan against a credit card if you need quick access to funds, especially for short-term needs and small amounts.
Both options have their pros and cons, so make sure to evaluate your financial situation and choose accordingly!