Point to Point Analysis of Personal Loan and Credit Card Loan

Both Personal Loans and loans on credit cards have a few things in common. For instance, both are unsecured loans and therefore, take less time for disbursal. However, despite some common similarities, there are a few areas in which these loan variants have minor differences.

Anyone can opt for a Personal Loan by approaching a bank or other financial institution. But, only individuals who avail credit cards of a particular bank or financial institution can apply for credit card loans.

For a credit card loan, financial institutions provide credit on the unused limit of the card. Suppose an individual holds a credit card which has a limit of Rs. 50,000. He/she has already used his/her credit limit up to Rs. 20,000. Therefore, a financial institution shall provide this person with a loan on his/her credit card for an amount up to Rs. 30,000.

Loans against credit cards are also known as pre-qualified loans, since applicants seeking such a loan already hold a credit card. For a Personal Loan, however, a prospect can directly approach a bank or a financial institution. Apart from these, few other minute differences between the two are –

1) Interest rates:

The most significant difference between a loan against credit card and a Personal Loan is their interest rates. Credit card interest rates are generally higher than those on Personal Loans.

Also, Personal Loan interest rates are negotiable. Prospects having a reliable credit rating, substantiated by a high CIBIL score, can secure a favorable Personal Loan interest rate by negotiating with the lender. 

Moreover, Personal Loan interest rates can be fixed or fluctuating. Mostly banks and NBFCs offer these loans on reducing balance rates. Meaning, the interest amount decreases as borrowers go on repaying their principal amounts. 

For a credit card loan, however, interest rates are fixed. Irrespective of principal amounts being repaid from time to time, these percentages remain the same. 

2) Credit amounts:

A credit card loan can be availed for minimal amounts, which go as low as Rs. 3,000. Also, these loans depend on the total credit limit available to a user. On the other hand, prospects consider a Personal Loan for relatively higher amounts. Mostly, borrowers can avail Personal Loans for values higher than Rs. 15,000.

3) End use

Both these loans have no specific end use. But, since users avail smaller amounts as credit card loans, it is advisable to apply these amounts for purchasing appliances, and electronics.Personal Loans can finance expensive tours, weddings, Higher Education Loan, etc. This is because financial institutions offer these loans for amounts as high as Rs. 25 lakh.

4) Documentation

To avail Personal Loans, borrowers have to provide financial institutions with proof of their Personal Loan eligibility. For this, they’ll have to furnish their payslips for last few months before the application, bank statements for the last three months, and KYC documents. 

Availing a loan against a credit card, however, is easier. This is because individuals have already proved their credit card eligibility while applying for the card. Therefore, financial institutions require no further proof of a customer’s eligibility while granting them a loan against a credit card. 

5) Fees

Loans availed against credit cards have relatively higher fees in comparison to personal advances. 

Therefore, there are a few distinctions between Personal Loans and credit card loan. However, before deciding to apply for Personal Loan, you must be aware of a few essential checkpoints for taking the final plunge.