The need for financial assistance can come up at any moment. To overcome these unplanned expenses, financial institutions provide us with their support. Below we will be discussing the differences between a personal loan and a credit card loan. A personal loan is a financial support given to an individual by the bank. The bank provides a lump-sum and charges rate of interest according to the amount and tenure of the loan.
A credit card is different from a personal loan, and it gives lifetime access to funds with a revolving credit line. The borrower gets access to a specified amount of funds associated with his credit card but does not receive the full amount although he can take funds according to his needs without crossing the maximum limit entitled with the card.
A home loan, car loan and other types of secured loans are considered as a personal loan. You can click here to know more regarding the details and get yourself a personal loan application today.
The following points will allow us to know the differences between a personal loan and a credit card.
Classification of the loan-
Personal loans are given to the borrowers without any collateral, which means it is an unsecured loan and banks generally do not ask for any guarantee on loan.
Credit card loans are usually pre-approved with a limited amount of funds associated with the card and also are termed unsecured loans.
The time frame for approval of loan-
Unlike credit cards, the approval and disbursal of funds for a personal loan take more time as personal loan documents are processed through multiple verifications. The approval time of personal loans can take up to 3-5 business days, but a credit card approval may take less than 24hours
Paperwork required for loan sanctioning-
A personal loan applicant has to submit the following documents in case of a loan. These documents are proof of identity, proof of address, proof of income. A credit card loan is sanctioned without any additional documents as the individual is already a customer of the bank.
Rate of interests-
Personal loan interest rates are typically low and range from 10-17% per annum, whereas the rate of interest for a credit card is higher at around 23-35% per annum. Unable to pay the monthly repayments will attract significant penalty charges for a credit card loan and the monthly repayments might become costlier, late payment penalties are incurred in a personal loan which in turn affects your credit scores.
Eligibility-
In a personal loan, an individual has to be an Indian citizen and must be 21years of age. The upper age limit should not cross 60 years. The individual must have a monthly salary of at least INR15,000 and minimum work experience of 1year with current employer. For a credit card, an individual must be an Indian citizen and not less than 21 years of age. The upper age limit should not cross 65 years. The individual must have a steady source of income with a monthly minimum salary of INR 20,000 and a total work experience of 2years. Non-customers of the bank can acquire a personal loan, but a credit card needs an eligible account holder of the bank.
Uses-
A personal loan can be obtained to buy substantial assets such as a home or car or even during a medical emergency. These types of situations require a lump-sum which can be easily secured by a personal loan acquired from a bank. A credit card is used when small financial needs arise such as to buy a new phone, unplanned travels, etc. Credit cards are accepted as a payment source nearly anywhere in the world that has an electronic payments system.
Repayment-
A personal loan will have the same monthly repayment amount till the tenure of the loan whereas a credit card monthly repayment amount will vary each month depending on the credit card bill. The most crucial difference between a personal loan and a credit card loan is the tenure of the loan, a personal loan term can be chosen for repayment within 15years or less, but a credit card loan has to be repaid within three years.
Credit report building-
Both personal and credit card loans will help you build your credit score, so choose the right type of loan you want for your financial need by comparing the above points wisely.
Both credit cards and personal loans are a logical choice to overcome financial emergencies they both have their own differences and benefits. Based on your financial needs, you should choose the most effective form of a credit line.