Why Credit Card Loan is More Expensive?

Last Updated : Feb. 10, 2020, 5:07 p.m.

Firstly, credit cards become debts when you do not pay the entire amount due on or before the payment date. And the debt becomes quite expensive in light of the factors that you will read in this post.

There is more than one reason that makes credit card loans an expensive affair for shoppers. But the flat interest rate remains as the primary one. Here, the flat interest rate means the interest will be charged on the whole borrowed amount. On a credit card loan, lenders usually charge an interest rate of 3 to 4 percent per month i.e. 36 to 48 percent per annum. Whereas, in a personal loan, the interest rate generally ranges from 11 to 25 percent per annum, which is a lot cheaper.

Apart from being expensive, you could also get stuck in the ‘Minimum Due Amount’ trap in the credit card loan. On taking a credit card loan, you can pay a minimum amount every month instead of the full amount. This minimum amount is generally 5% of the total outstanding amount. But, by doing this, your total debt will only mount further. And, it could also reach a point where you won’t be able to pay even the minimum due amount.

How Your Shopping Habits Make your Credit Card Loan More Expensive?

An expensive credit card loan is not a perfect option for you if you cannot control your shopping habits. But you can avoid it to become a debt for you by shopping with discretion. Also, always use the credit card according to your monthly income and repayment capacity.

You must be thinking about why we are emphasizing this factor of shopping habit? We will tell you through an example.

Suppose you shop worth of INR 50,000. The minimum due will be INR 2,500 for this loan amount. So, if you decide to pay only the minimum due amount, you will have to pay the interest on the remaining balance in the next billing cycle. And if you are not someone who has control over your shopping habits, this outstanding amount will keep increasing. And, you will be in this debt trap forever. So, try to wipe off the outstanding amount within the due date either with your savings or with a personal loan .

The second option would be to convert this transaction into an EMI. Here, you will pay the amount in easy installments at an interest rate of around 13%-18% a year, which is quite like that of personal loans. You can convert the credit card transaction into Equated Monthly Installments (EMIs) for tenures ranging from 3-24 months. However, lenders would allow you to convert those transactions into EMI that you have made 30-60 days before the date of conversion.