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Finance

Choose Between Personal Loan and Credit Card – A Detailed Analysis

When it comes to personal financing, personal loans, and credit cards are the most sought-after funding options. It is typically because of the ease of availing these finances along with the unrestricted end-use facility associated with them. While credit cards are easily available through lenders, you can also seek a personal loan through a loan app today. So, their accessibility is not a concern anymore. Though both these financing options have some features that are similar, they are vastly different in many aspects.

Nevertheless, prudent borrowing principles suggest that one must weigh the feasibility of one credit option over the other to make a better financing decision. So, here is a detailed analysis of the two personal financing options to help you make an informed borrowing decision.

What are Personal Loans?

Personal loans are commonly known as unsecured funding options available against zero-asset securities. You just need to fulfil the simple eligibility requirements to get a personal loan, as and when needed. These loans are easily accessible via dedicated loan apps and need only a few documents for paperwork completion. A personal loan typically stands to provide for big-ticket financing or fulfilling the emergency needs of individuals.

Availing a personal loan has become easier than ever today with the likes of loan apps. Accompanying features like high loan value, repayment flexibility, and attractive rates of interest only make these financing options irresistible to go for. You can apply for a personal loan either offline or online, with online applications bearing higher chances of fast loan approvals through reduced processing time.

Lending institutions also provide dedicated financial tools like EMI and eligibility calculators to help individuals make suitable borrowing decisions as per their affordability. Today, you can also access these calculators through some of the best loan apps in India.

What are Credit Cards?

Credit cards are financial tools that provide funding to individuals on the go. These instruments are designed to make financing convenient. Be it booking your flight tickets or going for shopping, a credit card can come in handy for all expenses. In tune with that, credit cards also come with offers and loyalty programs on dedicated transactions and are available in a host of customisations to suit individual requirements.

These are flexible financial instruments and need to be repaid every month as per the billing cycle followed. Even though no immediate interest liability is created on these cards, missing out on bill payments in time can attract interest at a disastrously high rate, and thus it is best to make sure that you pay your credit card bills in time.

Points of Difference Between Personal Loans and Credit Cards

Here are some points that create a clear line of distinction between personal loans and credit cards even though they are both considered alternative financing avenues.

  1. Financing value

The financing value of personal loans is usually higher than that of credit cards. It is because the former is designed for long-term spending needs while the latter helps meet immediate expenses in small ticket sizes. When seeking credit in a lump sum but not looking for high-value financing, a personal loan from dedicated loan apps can be a great way to fulfill your funding needs than availing a credit card due to usage restrictions for the latter.

  1. Term of financing

A personal loan is usually available for a tenure of 6 months and can go up to 5 years depending on the loan selected, which also makes repayment convenient. However, financing via credit cards is only available for a monthly cycle, and the total credit available renews based on your bill payment.

  1. Repayment of credit

For personal loans, you need to make the repayment in EMIs over the tenure of the financing. The total loan liability consists of the loan principal availed and the interest added thereto and is divided over the months spanning the total years of repayment, resulting in EMIs payable. When seeking to avail personal loans, individuals can check out the loan apps for attractive features and benefits. Contrarily, credit card financing is paid as lump sum monthly bills and comprises the amount used out of the total available credit. An option to pay the bill in part or in full exists too.

  1. Benefits availed

The benefits of a personal loan include long-term utility and convenient repayment with low rates of interest. For credit cards, you can look forward to interest-free financing if you pay your monthly bills on time and in full. There may also be cashbacks and reward points that you can earn on your credit cards. Check with your lender and compare these benefits smartly.

  1. Disbursal and usage

A personal loan is provided to you in a lump sum amount and disbursed to your account. In the case of a credit card, the amount is available on a plastic card, and you can use it as any of your other cards. However, the point to ponder here is that you shall not use over 30% of your credit card limit if you wish to maintain a good credit score. While in the case of a personal loan the entire amount is at your disposal. Also, the limit in a credit card is usually much less than that of a personal loan.

To conclude

When availing personal loan, you can simply get a loan app downloaded and installed on your phone and register for the application. If you choose a credit card, you would need to apply for it with the lender’s website or app, as available. The choice between these two funding options primarily depends on the expenditure type you need to meet and your financial management skills.

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