Is Taking a Loan against the Credit Card a Feasible Option?


  • Want to know the feasibility of a loan against a credit card offer of banks?
  • You have come to the right place, this post will detail you on the nitty-gritty of this product!

Firstly, what does the loan against a credit card mean? Let us tell you it is a type of pre-approved personal loan that you get based on a strong credit card repayment track. The offer can be within or above the credit limit of the credit card. If you go to various mediums to check whether availing such a credit facility will do good to your finances, you may get confused with partial views on this matter. Keeping in mind to eliminate your confusion, we will give impartial views so that you can decide whether it is feasible to you. Let’s begin!

Positives of Loan Against Credit Card Offer

The loan comes with a host of positives such as greater possibilities for lower rates of interest, the instant disbursal and much more. Let’s read them one after another.

Greater Scope for Lower Interest Rates

As the loan comes pre-approved, you hold a great chance of securing it at a lower rate of interest. If the rates get lowered, you can repay the loan comfortably with lower Equated Monthly Installments (EMIs) over a tenure of 1-5 years.

Loan Comes Without Documentation

You don’t need to submit any documents to access loans against credit cards. The reason being these loans come from the existing lender which has your documents when you initiated the credit card relationship with it.

Instant Disbursal

As there’s no documentation, the loan can be disbursed instantly to your account once you give your consent to the offer.

Availability of Different Channels to Access the Facility

You can apply for the same using net banking, mobile banking or even SMS banking.

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An Opportunity to Add on to Your Credit History

Having more credit accounts adds to your credit mix and so to your credit history if you pay all your dues on time. Handling multiple debts responsibly indicates your strong debt management capability.

Key Points to Note

After all these positives, let’s take a look at some key points that need your attention. They may not be negatives, but failing to comprehend the same can at least be a lost opportunity for you!

Loan within the Credit Limit/Above the Credit Limit

The loan that you get against a credit card can come within the credit limit or above the credit limit of a credit card as stated earlier. In the former, the loan is blocked against the credit limit and not so in the latter. When the loan gets blocked against the limit, the monthly EMI + Goods and Services Tax (GST) on the interest component of the EMI will be blocked against the limit. Assume you have a credit limit of say INR 80,000. If you get the loan of INR 2 lakh disbursed at 12%, it will give rise to a monthly installment of INR 5,267. As the interest component will vary with each month, the GST levy will differ accordingly. For the first month, the interest component will be INR 2,000. If we apply the existing 18% GST, the levy will amount to INR 360. If we add the same to the monthly EMI of 5,267, it comes as INR 5,627. So, for the first month, the credit limit available for utilization will be INR 74,373. As the interest component will decrease over time, the available credit limits will rise month after month. You will get to see the loan EMI and interest on the credit card statement.

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In case of loans given above the credit limit, you will be given a separate loan account. Here, the loan amount will not be blocked against the limit. You’ll get a credit card bill as you are getting now plus a loan EMI reminder. Both will be treated separately.

Apply When You Need it & Not for the Sake of it

Having a loan against the credit card only enhances your repayment burden. So don’t take loans just because the bank is offering you on your credit card. Apply for the loan when you need it the most. Plus, don’t think the offer comes with any validity period as such. As long as your credit card repayment track remains smooth, you’ll be eligible for the offer.

Choose the Loan Amount Carefully

As the number of credits gets enhanced with a loan, your responsibility as a borrower rises significantly. So even if you are eligible for a greater loan amount, see if you can do with less. There’s no point paying higher EMI and massive interest on a greater loan. So choose the loan amount considering your income, existing credit card obligations and your other expenses.

Stop Revolving Credit Card Debts for Your Own Good

Yes, credit cards come with a revolving credit facility by which you can get away with a partial payment of the credit card dues. Paying the minimum due constituting around 5% of the outstanding balance or a higher amount but below the total due on or before the due date can relieve you from the late payment charges. But doing so will add to your debt burden at an astonishing interest rate of 30%-40% a year. And, if you add an interest rate of 15% (assumed) on a personal loan, your total interest outgo in percentage terms will be 45%-55%, which is not a good indicator at all. Shop with your credit card carefully now since you have a loan obligation to fulfill too. Revisit your budget constantly and make changes to it to accommodate both credit card purchases and loan EMI obligation without making you feel strained.

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Lenders That Offer a Loan Against a Credit Card

A host of lenders offer loans against credit cards to its customers. But how much interest rate and processing fee they charge? You can know all looking at the table below.

LendersOffer NameInterest Rate (In Per Annum)Max. Loan AmountProcessing FeeMax. Loan Tenure
State Bank of India (SBI)EncashAs applicableDepends on the offer2% of the loan amount, subject to a minimum and maximum of INR 499 and INR 3,000, respectivelyUpto 4 Years
HDFC BankInsta Loan15%Depends on the offerINR 700Upto 4 Years
ICICI BankPersonal Loan on a Credit CardAs ApplicableUpto INR 10 LakhAs ApplicableUpto 5 Years
Axis BankInstant Loan11.40%-22.20%Depends on the offerAs ApplicableUpto 4 Years
Kotak Mahindra BankPersonal Loan on a Credit CardAs ApplicableUpto INR 5 LakhAs ApplicableUpto 4 Years

Note – The processing fee will also include a 18% GST.

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