A credit card loan, is it really worthy?

Most of us receive various mailers and notifications in our emails regarding loan on your credit card or various offers in credit card. Last week, Amita Bhola, HR Head in MNC, receive an email from one of the leading bank stating that she is eligible to borrow a credit card loan of Rs. 3 lakhs form the credit card company. Yes, loan on credit card is offered by various banks to existing customers based on their credit card limits and spending habits. Loan on a credit card is almost similar to the personal loan. But, the major difference in this loan as it is pre-approved loan and does not require any documentation work to borrow the loan.

Most of us generally consider loan on credit card as cash withdrawal facility on the credit card. But, it is different from that. The major difference is in the form of interest. The interest rate of the credit card loan is more or less similar to the personal loan, where as cash withdrawal interest rate is way to higher than personal loan or credit card loan.

This credit card loan facility is ideal in a situation if you require higher amount than your cash withdrawal limit of credit card. You can use it to get higher amount to meet your personal needs. However, withdrawing money from credit card impose higher rate of interest on the money than credit card loan. So, taking the credit card loan is better option than withdrawing the money from it. To avail the loan either you will get a demand draft from the bank or you get the money transferred in your account.

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Features of credit card loan:

  • Loan on credit card is more or less similar to personal loan. But, it offers you advantage of paper and documentation less process. As it is pre-approved loan and there is no documentation work  involved, so it takes less time in disbursal.
  • Processing fee will be charged, which would be a minimum of a particular sum or a percentage of the loan amount.
  • You can repay the loan in monthly installments and there would be prepayment facility too with a charge on prepayment. The EMIs will be billed to the credit card every month.
  • The loan can be obtained the loan for maximum tenure of 24 month with slabs of 6,12, 18 and 24 months.
  • The rate of interest will be dependent on the type of card i.e. gold, silver and platinum and the credit card profile of the customer. Therefore, managing your credit card score and your credit history is key as the rate of interest quotes will take into consideration those factors.

Are you eligible?

Credit card issuers offer this facility to individuals who have good credit score or repayment history and a high credit standing. If you have a good track record over the tenure for which you own the credit card, bank would easily offer you this loan facility. In some cases, with improved income level over the years a person could also upgrade his credit card from silver to gold for or gold to platinum as per their income and eligibility. Some of the leading banks such as ICICI Bank, HDFC and HSBC Bank offer the loan facility on credit card.

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Amount of the loan offered

The quantum of the loan on the credit card is dependent on the credit limit of the card. The card limit however, depends upon the usage of the card, monthly income of the card holder, repayment history and credentials. The loan amount generally tends to be higher than the maximum cash withdrawal limit. If you have borrowed the more amount than your maximum withdrawal limit of credit card in that case most of the banks will block your cash withdrawal facility. Moreover, the bank can also block the credit limit on the card to the extent of the outstanding loan amount.

Should you opt for the credit card loan?

Loan on credit card is also considered as unsecured loan and hence the rate of interest will be higher as compared to any secured loan or loan against gold or property. If you are looking for any unsecured loan, then it may make sense to find out from your credit card issuer, negotiate on the rate of interest, other charges and fee against credit card loan. Compare these terms and charges against your personal loan offer and it you find it same or more affordable then only apply for it. If the rate of interest difference is marginal and there is not much of a difference in other terms and conditions and you are in urgent need of money then exploring credit card loan is good option.

Credit Card Loan vs Personal Loan

When it comes to credit card loan and personal loan, both these products are kind of similar in a way, but with some difference. If you avail a personal loan, plenty of lenders are ready to offer you a loan so as to meet all your personal needs. The same goes with credit card loan, wherein the cardholder can avail the loan on his/her card. But, in credit card loan, you don’t need to submit the documents as it comes to you as a pre-approved loan, whereas in case with personal loan, the applicant needs to submit the required documents for the same. Both can be used to fulfill the personal needs, but there is a difference in the rate of interest. Both of them have their own merits and de-merits, so it is better to take a calculative decision before availing either of the loan.

(Updated on: 27th August, 2016)

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