Personal Loan

Credit Card vs Personal Loan

Image result for Credit Card vs Personal LoanPersonal loans and credit cards are two different financial avenues that allow you to borrow a certain sum of money without the need to pledge any collateral. While a credit card is considered ideal for short-term monetary requirements that you can usually pay off in a month (or a few months), personal loan is a good option for big-ticket expenditure and major financial obligations that involve a large sum of money.
Let’s analyse these two instruments through a comparative study in order to find out the differences and how you can benefit from each:

What is a personal loan?
A personal loan is usually unsecured and can be availed to address an array of requirements such as tackling a medical emergency, funding higher education, financing your holiday trip, renovating your home, making big-ticket purchases or consolidating your debt, for that matter.
The eligibility criteria to avail a personal loan hinge on factors including credit score, monthly income, age and employment status among others.

What is a credit card?

Credit cards are one of the faster sources to obtain unsecured credit or loan from a bank. All you need to do is swipe your card to shop at merchant outlets or withdraw money from ATMs. You can utilize your credit card in order to borrow money against a specific line of credit, considering you would repay within a particular period of time.
A note here is that a credit card often attaches higher rates of interest that would be levied on your purchases should you not repay the debt and settle credit card dues within 30 days.
Certain banks allow you to repay in easy monthly instalments (EMIs), thus spelling more convenience than ever.

Credit Card v/s Personal Loan

The basic points of difference include:

Purpose: A personal loan might be your best bet should you want to finance a big purchase or your investment requires a larger outlay. However, a credit card remains a viable alternative in case you want to make small or big purchases for both personal and business related needs.

Disbursement: A personal loan entails a lump sum disbursal to the borrower, whereas a credit card warrants direct payment made to the merchant on every swipe of the card.

Repayments: With a personal loan, you would have to pay regular EMIs to the bank for a particular tenure. That being said, you would need to settle dues on your credit card within the credit period, that is, every month.

Interest rates: A personal loan arrangement would require you to service monthly instalments (EMIs) towards complete repayment of the loan, spread over a specific tenure. These EMIs include both principal and interest (that is determined by the bank at the very outset) components.

However, credit card interest would accrue should you default at the time of settling outstanding dues in full, at the end of every month.

Borrowing limit: The amount of personal loan you qualify for is determined by the bank, basis factors such as your credit score, monthly income, employment status, etc. Conversely, a credit card involves a pre-set line of credit against which, you would be able to borrow funds.

Prior to zeroing in one of the financial products, it would be smart on your part to compare both and also weigh in your financial obligations.

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