When you are in need of instant cash, it would not be wrong to say that credit card is surely a handy tool to use. Moreover, these cards provide you with the cash withdrawal facility along with loan against credit card. Yes, these two options can effectively be used to cater your immediate requirement of cash. Now, you don’t need to disturb your long-term savings. However, one thing that needs to be mentioned here is the fact that loan against credit card have more brownie points than cash withdrawal because it comes with one drawback and i.e. high interest rate is charged on the withdrawn amount.
In fact, you also need to pay some unnecessary processing charges if you opt for cash withdrawal. So, one should avoid using his/her credit card for cash withdrawal so as to stay from hefty interest rate. In fact, better option is to go for loan against credit card to fulfill your urgent need.
So, let’s try to figure out the functionality of taking loan against credit card and how exactly how beneficial it is?
What is Loan against Credit Card?
If you are having a good credit history, and an old customer of the bank, there is not only one, but plenty of banks provide you with the personal loan against credit card, depending upon your credit history. Moreover, if you are not a defaulter, your loan is approved instantly with no documentation. In fact, on top it, the rate of interest of the loan is also very low as compared to normal personal loan available in the market.
Key features of Loan against Credit Card
- No Documentation
The banks offering you loan against credit card use the documents that are already available with them. Being an old customer of the bank your documents are already submitted so there is no need to submit them again.
- Quick processing time
Moreover, with no documentation, it would not be wrong to say that processing time automatically reduces drastically, and ranges somewhere between 2 to 5 days.
- High processing fee
However, being an unsecured loan, the bank is taking a risk to provide you with the loan. Thus, it tries to compensate the same by earning through different means, hence charges a high processing fee.
- Personal loan amount over and above cash withdrawal limit
Usually, you get the loan which is above the cash withdrawal limit of your credit card.
- Interest rates on loan are quite competitive to market rate
The interest rates being charged are quite similar to what you get on personal loans. However, they begin to move in northward direction, in case you are having a bad credit history.
- Flexible repayment options
When it comes to repayment options, banks are very flexible. You can have easy repayment options like EMIs in your credit card statement. Along with this, you can also select from multiple tenure options such as 3,6,9,12,18,24 months and so on.
- Heavy pre-payment penalty
As mentioned earlier, the bank is taking a big risk while giving you the loan, so it does not want to lose the interest income, thus discouraging the pre-payment of the loan by charging the heavy pre-payment penalty.
Eligibility Criteria and Loan Amount
There are certain guidelines which need to be fulfilled before your loan amount is disbursed against the credit card. Yes, you should be an old customer of the bank with having the no default history. Thus, in order to increase your limit, one of the smartest ways is to get your card upgraded, but in real life scenarios time doesn’t allow you that.
When it comes to loan amount, it depends upon your earning potential as well as credit history. It’s usually above your cash withdrawal limit, and below the overall credit limit of your card. If you have maintained a good credit history, you can always negotiate with the bank. However, taking loan against your credit card have further implication on your cash withdrawal limit, and overall limit because both of them will decrease of the tenure of the loan.
When you should apply for Credit Card Loan
When you are in urgent need of cash, in that case it would be ideal to opt for loan against credit card. If you are not having the enough time to get a personal loan sanctioned as it needs various kinds of documents and verification, going for loan against credit card is a far better option than cash withdrawal. Once you opt for the cash withdrawal, you pay the interest rate that ranges between 30%-40%. Whereas on the other hand, taking a loan will cost you somewhere around 20%.
Thus, mentioned above that it is not a better option as compared to get the loan against credit card. However, do not forget to negotiate with the bank as it can make a substantial difference when it comes to your interest expense.