When it comes to personal finance or you are in urgent need of money for your personal reasons, the first thing, which comes to your mind is borrowing a personal loan or using credit card to pay off the money. This is really tough call and one should always calculate and evaluate all the possible factors before choosing one. People have their own views and opinions, some feel that personal loan is a better choice and some believe that credit card loan is better option.
Whatever will be your decision on this, always take a well-informed decision. Both options have their positive and negative sides and both don’t fit for all. It might be that personal loan is feasible for one, but it is not feasible for another person. Here are some factors which one should consider before finalizing any of these:
Interest rates: This is one of the most important factor that you should always consider before availing any of the option. It can increase or reduce your burden of loan. There are many credit cards which offer you credit free time if you use their credit card at selected merchants. Whereas, personal loan is much more higher as compared to that. Most of the bank offer you a personal loan based on your eligibility and it also plays important role in deciding the rate of interest. Generally, banks offer personal loan from 12% to 25% of rate of interest, which is very high as compared to using credit card with free credit days.
Loan amount: If you require higher loan amount or you need an amount more than Rs. 5 lakhs then credit card will not help you out. In that case you have to borrow a personal loan from any of the bank. Personal loan is available for upto Rs. 30 lakhs, whereas the maximum loan amount for credit card or higher limit to borrow the money is Rs. 3 lakhs. So, if the higher amount is required, then credit card is not that helpful as it has maximum spending limit, whereas you can borrow the higher loan amount as compared to credit card.
Processing fee: If you will borrow the personal loan from any of the bank you have to pay the processing fee to the bank as administrative charges. Most of the banks take 0.50% processing fee to 2% processing fee. But, in credit card the processing fee is very nominal as compared to personal loan.
Foreclosure charges: Most of the credit cards don’t charge any foreclosure fee from the customers if you prepay the loan and close it early. But, there are many banks that charge foreclosure fee from the customers if they will prepay the loan amount to close it.
Time consumed: Credit card loan is much more handy as compared to personal loan. You can instantly get the money in case of credit card. But, if you have applied for personal loan in that case bank will take some time to disburse the loan amount. Generally, bank take 5-7 working days to approve and disburse the loan.
Documentation and paper work: While borrowing the credit card loan you are not supposed to furnish any document to bank as your documents are already there with bank. But, if you are borrowing the personal loan in that case it will ask for various documents from your KYC to salary statement and income proof to evaluate your application.
Loan tenure: If you will borrow the credit card loan in that case your loan tenure is not longer as compared to personal loan. Generally most of the credit card companies offer you a tenure from 12 months to 48 months, but in personal loan you will get the loan for maximum tenure of 5 years.
(Updated on: 8th August, 2016)