The demand for personal loans and credit cards is gaining a lot of momentum among borrowers. These are the two most popular options for borrowing funds during any financial emergency. Both provide the money instantly. However, deciding between a personal loan and a credit card is not always easy.
A personal loan is a fixed loan that you have to repay in equal installments during a specified tenure. It is extended by many non-banking financial institutions to help borrowers meet unexpected expenses, such as debt consolidation, medical bills, marriage costs, unplanned business tours, etc. Further, due to its unsecured nature, you can get the loan reasonably fast without keeping any collateral with the lender. You can apply for such loans either online through personal loan apps or by visiting the lender’s branch.
On the other hand, a credit card, also known as revolving credit, is a line of credit that you can borrow depending on your credit limit. It can be used 24X7 and is beneficial for those who require funds for the short-term. Numerous online loan apps can help you in availing a credit card instantly.
Personal Loan vs Credit Card
Though personal loans and credit cards share similar attributes, there are also various vital differences, such as repayment options, interest rates, and more. Let us explore the difference between the two, based on the following factors.
- Rate of interest
Personal loans come with fixed and competitive interest rates as compared to credit cards. In India, the interest rates on personal loan range between 10%-22%, whereas, credit card loans offer an interest rate of 15%-40%. This makes personal loans a lucrative choice for borrowers who require urgent funds at low-risk.
In case of credit cards, the borrowers have access to the specified amount, but they do not receive the amount in full. Instead, the borrower can withdraw the required amount at any time up to a maximum limit.
A personal loan is a perfect choice for those who are looking to borrow a substantial amount at once during emergencies. In personal loans, you receive the amount in a lump sum, which means you get the entire loan amount in your account and you can’t borrow more after that. The major benefit of this feature is that you are not tempted to overspend your money as you would have in case of credit cards.
The purpose of borrowing funds also plays a significant role in selecting between a personal loan and a credit card. Credit cards are suitable for fulfilling smaller purchases and other short-term financial needs, which can be easily repaid within a year. If you have a healthy CIBIL score, you can avail a zero-interest credit card loan as long as you repay the amount in full before the end of the specified period.
Personal loans are considered best for larger purchases that can take you more than a year to repay. With a good credit score, you can comfortably secure a high-value loan that comes with lower interest rates.
Nowadays, there are multiple instant loan apps available in the market that you can use to obtain personal loans and credit cards with much ease and minimal documentation.
As you can see, both personal loans and credit cards are helpful in their own ways. Hence, the choice between the two depends on your credit score, the amount of loan you require, the purpose of availing the loan, and also the duration you need to reimburse it.