Home >Brand Post >Personal loan or credit card loan: Which one should you opt?
When you borrow a personal loan, the sanction you get is based on your current credit score and financial profile. (Bajaj Finserv)
When you borrow a personal loan, the sanction you get is based on your current credit score and financial profile. (Bajaj Finserv)
BRAND POST

Personal loan or credit card loan: Which one should you opt?

While it may be convenient to accept the credit card loan offered to you, take note of the fact that you’re charged 18% GST on your EMIs.

Availing a loan is a smart way to bolster your finances in times of need. As a borrower, you have numerous options available to you and amongst the most accessible ones are personal loans and credit card loans. Both are offered by lenders across multiple platforms through pre-approved loan offers. Also, owing to advancements in the financial sector, you’re able to secure financing while bypassing lengthy verification protocols. Today, getting an online personal loan is a reality and can be as simple as getting a credit card loan, provided you borrow from the right lender.

If you’re unsure about which one to opt for—a personal loan or a credit card loan—consider the following pointers to make a smart decision.

Credit card loans attract 18% GST on the interest amount

While it may be convenient to accept the credit card loan offered to you, take note of the fact that you’re charged 18% GST on your EMIs. This charge, alongside the other fees, makes a credit card loan very costly. However, with a personal loan, this is only levied on the processing fee, meaning that you incur 18% on the 1–2% charge. To understand this better, consider the following example:

On a Rs.5 lakh personal loan taken for 24 months at an interest rate of 15.5%, your EMIs are Rs.24,362, where for the first month your interest payment amounts to Rs.6,458 and principal payment amounts to Rs.17,904. This is a basic breakdown, which you can obtain from a personal loan EMI calculator that displays repayment schedules. Considering the same breakup for credit card loan, note that here instalments incur an additional Rs.1,162 owing to the GST charge on the interest amount (Rs.6,458). On the whole, this raises your EMI to Rs.25,524.


Over time, this seemingly minor difference can lead to a major increase in your total expenditure and can be avoided by simply opting for a personal loan over a credit card loan. You can compute these values yourself by using a credit card loan calculator and a personal loan calculator.

Personal loan sanctions are based on your financial profile, not credit limit

When you borrow a personal loan, the sanction you get is based on your current credit score and financial profile. If these indicate good financial health, you can get approval for the loan amount you seek without any hassles. However, with a credit card loan you can only get financial assistance up to the assigned credit limit. In many cases, this limit is much lower in comparison to the loan amount available through a personal loan, making a credit card loan an inadequate option when you need a larger sum.

Credit card loan instalments are deducted from your spending limit

An important factor to note with credit card loans is that generally, your monthly instalments are directly deducted from your spending limit. So, if you’re approved for a monthly limit of Rs.1 lakh and the EMI for your credit card loan amounts to Rs.20,000, the amount of finance you have for other expenses will be Rs.80,000. This means that even as you avail funding, you will have to compromise on other expenses owing to a lower, restrictive credit limit.

Personal loan repayment tenures can range up to 5 years

A key benefit of borrowing via a personal loan is that you can repay comfortably over an extended tenure of up to 60 months. While this does increase your overall interest outgo, it minimises the risk of default and helps you bring your expenditure towards the loan within your budget. With a credit card loan, the tenure usually ranges between 12 and 48 months. This means that if you are borrowing large amounts of money, your EMIs will be higher, as the window for repayment is smaller in comparison to that of a personal loan.

As you’ll notice, a personal loan offers greater borrowing and repayment convenience in comparison to a credit card loan, thus making it a better solution to go with. Further, when you’re on the lookout for an instant personal loan, consider the Bajaj Finserv Personal Loan as it grants access to speedy financing much like a credit card loan does. This is possible owing to lenient personal loan eligibility criteria, which allows instant approval and swift same-day disbursals.

Additionally, you can opt for the Flexi personal loan for added flexibility. This feature allows you to borrow from your sanction multiple times, as per your need, and limits your interest outgo only to the amount you’ve withdrawn. Further, you can also choose to part-prepay the loan whenever you have access to funds. Besides, you can reduce your monthly instalments by up to 45%. To lower the overall loan processing time, check your pre-approved offer for a customised deal and secure instant approval.

Disclaimer: This content is distributed by Bajaj Finserv. No HT Group journalist is involved in the creation of this content.

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