Credit card vs personal loan: It is common to have a sudden need for money. Whether it is medical emergency, children’s fees are required or funds are needed for any necessary work in the house. If you have not already prepared an emergency fund, you have only two easy options- credit card or personal loan.
Both are unusable loans without any guarantee or mortgage. But which of these options will be right for you, it depends on your need, time and ability to pay.
When is the use of credit cards correct?
Now the credit card is no longer a means of shopping or filling the bill. You can also pay school fees, rent or any medical expenses from it. You can also withdraw cash from ATM through credit card. However, it has to pay heavy interest and cash withdrawal charge.
The biggest advantage of credit card is that you do not have to pay interest till a fixed time. Usually this grace period is 30 to 45 days. If you pay arrears within this time limit, there is no interest. Also, there are benefits like reward points, cashback, discounts and gift vouchers on the card. These benefits are not found in personal loans.
However, there is also a risk with credit. If you do not pay on time, the interest rate on the credit card is very high. Many times 36% annually or more. Also, if you spend excessively and are unable to pay on time, then you can also get caught in the debt trap.
Advantages and disadvantages of personal loan
If you need a lump sum amount- such as 1 lakh or more, then personal loan can become a strong option. This loan usually approves banks or NBFC by looking at your income, credit score and job status. Once the processing is completed, the amount comes directly to your account.
In personal loans you have to pay money every month as fixed EMI. Its duration can range from 12 months to 60 months, which you can choose according to your need. However, its interest rates are higher than a home loan or gold loan, often from 11% to 24% per annum. Also, some banks also charge penalty and processing fees on pre-payment.
When will it be right?
| Point | Credit card | Personal loan |
| Money | Spending inside the limit | From ₹ 50,000 to ₹ 25 lakh |
| Interest | 30–42% annual after grace period | 10–24% annual |
| Time to get money | Immediate (while spending) | In the account in 1–3 days |
| Way to repay | Minimum amount or full payment | Fixed EMI every month |
| when to use? | Small and immediately for needs |
Large amount and long term |
If you need a small amount like Rs 20,000–30,000 and you can repay it in the next one or two months, then the credit card will prove to be more convenient. Its benefits will also get and the process is also easy. But keep in mind that it is necessary to make complete payment on time, otherwise the interest can increase considerably.
At the same time, if more money is needed and payment is to be made in the long term- such as medical treatment, marriage or any big expense, it would be better to take personal loan. You can gradually repay it through EMI, and the monthly installment can decide according to your income.
Also read: Do you have to pay tax on the gift found in the wedding? Know what the law says