Credit Card Loan vs Personal Loan – Comparison and Benefits

Personal and credit card loans both provide a means of borrowing money at many of the same standard credit terms. Loan and credit card contracts include funds given by a lender at a set interest rate. Faulting on either type of credit can harm your credit score, making it hard to obtain loans in the future.

In addition to the similarities between personal loans and credit card loans, there are some important differences. The core distinction between credit card loans and personal loans is the type of credit involved. 

Key Differences between Personal Loans And Credit Card Loans

Below are some of the aspects in which both types of loans differ from each other: 

• SourcePersonal loans are available from any financial institution, but credit card loans can only be obtained from a credit card company.
• Loan AmountPersonal loans allow borrowers to borrow a large sum of money. Credit card loans offer a limited credit limit. As a result, the loan amount is less than that of personal loans.
• Approval and Disbursal TimeApproval and fund disbursement times for personal loans are longer. Credit cards are immediately approved, and the loan amount can be used right away. 
• Interest RatesPersonal loans are the most expensive type of loan. But you can get a personal loan at low interest rates if you have a good credit history and a good, steady income. On the other hand, most credit card interest rates are variable and fluctuate. Your credit rating may have an impact on the credit rate you will be charged.

Benefits of Personal Loans

• Flexibility and VersatilityBecause no restrictions are placed on the end-use, a personal loan can be used for almost anything, including a combination of personal and professional costs. You can use it for a big purchase, urgent medical bills, or business capital. Loan terms for personal loans are also very flexible. They can range from one to ten years. So, you are free to choose a tenure based on your repayment capacity.
• Longer Loan Terms With personal loans, you can choose a loan tenure of up to 10 years. This will get you an affordable EMI and enough time for repayment. Longer loan terms also help reduce the cost of borrowing money.
• No Collateral RequirementYou do not need security to get an unsecured personal loan. This means you do not need to put up any assets as collateral to guarantee repayment of the funds. If you are unable to repay the loan by the end of your loan tenure, you will still face serious outcomes. But unlike loans with collaterals, you will not lose your assets.
• Affordable Interest RatesYou can find yourself a personal loan with competitive interest rates. With this loan, you can enjoy low EMIs. The interest rate is usually fixed. So, your EMIs are also fixed for the duration of the loan, and you do not have to worry about varying interest rates.
• Quick DisbursalA personal loan only takes 24 to 72 hours to be sanctioned. So, it is a good financial bond for meeting urgent cash or payment needs. To make personal loans work for you, you must meet the eligibility criteria and maintain a good credit score.

Benefits Of A Credit Card Loan

• Credit ConstructionIf you have low credit and are trying to improve it, getting a credit card will help. This helps because credit card companies report your payment activity to credit bureaus. Even if you must pay a deposit to obtain a secured credit card, doing so can help you build your credit history. This only works if you use the card responsibly and avoid getting into credit card debt.
• InsuranceMost credit cards automatically include several consumer protection plans, such as rental car insurance and product warranties that can exceed the manufacturer’s warranty. Many people are unaware of these benefits. But you should do your research and claim these extras.
• SafetyIt makes it easier to avoid fraud losses. Legitimate expenses for which you have made online payments or mailed checks may bounce, resulting in insufficient funds fees and a negative impact on your credit. Even if it was not your fault, late or missed payments can hurt your credit score.
• Recordkeeping A credit card keeps a detailed record of your spending. Some credit cards send year-end summaries, which can be a valuable resource when it comes time to file your taxes. This can also help you understand your spending habits and manage your finances.
• Cash Advances Often, credit cards allow you to obtain funds during a cash crisis. But these cash advances have higher interest rates. So, you should have a realistic plan in place to repay those advances.

Conclusion

Banks and non-banking financial firms provide both personal and credit card loans. These credits have specific interest rates, are repaid in EMIs, have default penalties, and have other charges. Mismanagement of the two can have an impact on one’s credit score and financial stability.

Credit card loans and personal loans are both excellent tools for getting funds. The decision between the two is based on your needs. If you do not qualify for a credit card, an instant personal loan may be the next best option. If you do qualify for a credit card, you must compare the interest rates on both loan types before deciding on one.

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