Whenever a sudden expense or immediate need strikes, availing a personal loan or paying via a credit card are often sought-after options. However, it important to understand the ideal scenarios in which you can use either of the two methods.
Let us understand both these products independently first –
What is a Personal Loan?
Personal Loan is an advance offered as a lump sum without pledging any collateral from the borrower. Interest is charged on the amount borrowed and then it is expected to be repaid within a defined time period. Usually, there are no restrictions on the end-use of the amount borrowed through a Personal Loan. Hence, you can use it for a wide range of purposes – Education, Travel, Weddings, Medical expenses, and Renovation, etc. You may need a good credit score (generally 750 & above) in order to avail a Personal Loan. There are multiple instant Personal Loan apps available online that can help you get quick financial assistance. They are Early Salary, Bajaj Finserv Personal Loan app, Tata Capital, Kissht etc. Each platform can have its own set of criteria which you may have to fulfill in order to be deemed as eligible for availing an instant Personal Loan online.
What is a Credit Card?
The history of Credit Cards can be traced back to the 1920s in the United States where they were first used. Since then, this instrument has gained popularity rapidly among the masses. A Credit Card is an instrument that allows its owner to pay for goods or services in advance; up to a certain limit and then repay it with interest later. Generally, it possesses the attribute of Revolving Credit; wherein the Credit Limit is revised upon complete repayment of past debts. Here, there is no fixed time frame to pay back the amount used through the Credit Card. The more time any cardholder takes to repay, the more interest he is charged. There are numerous options where you can apply for a credit card online. RBL MyCard, Bajaj Finserv, CredPal are some of the popular Credit Card apps or you can also apply on any Bank application. You can easily avail online credit cards and monitor your transaction through the app.
When can you use a Credit Card or a Personal Loan?
Not every situation can be ideal either for a credit card or for a personal loan. Under certain circumstances, a card would an apt choice & likewise, a person would be a fitting option for certain instances. The below table highlights some ideal scenarios in which you can choose to use either a Credit Card or a Personal Loan –
|Credit Card||Personal Loan|
|For buying something within your credit limit||For paying back entities that do not accept credit cards|
|For making any instore/online purchase||Paying a large amount over a period of time|
|If you are not eligible for a Personal Loan||If you need an amount large than your credit limit|
So, what is better?
Once you are aware of your spending and repayment habits, you may know the answer to this question. Although, here’s a quick comparison to help you choose better –
|Personal Loan||Credit Card|
|Amount once borrowed cannot be revised||Credit limit can be revised after successful repayment|
|Lower interest rates||Slightly higher rates than Personal Loan|
|The fixed time period for repayment||Higher interest rates & penalties if repayment is delayed|
|No collateral needed||There are Secured Credit Cards that need a cash deposit as a security.|
|CIBIL score needs to be strong||CIBIL score needs to be strong|
|Offered as a Lump sum||Credit limit may not be increased in case of bad CIBIL|
|No restriction on end use||No restriction on end use|