Credit Card Loan vs Personal Loan: What’s the Difference?

When it comes to borrowing money for smaller expenses, you can clearly look upto your credit card to make the purchase for the time being. However, when you have to make huge expenses that exceed your credit limit, loans come to the rescue.

Just like a credit card, you borrow money from a bank when you take a loan. However, using a credit card makes you liable to repay the amount on a monthly basis, whereas loans have a longer duration for repayment. When it comes to borrowing money from a bank to meet your current expenses, there are two ways of doing so- you can either choose to use your credit card or you can take a personal loan.

Let’s understand the difference between both of these and find out which one would work better for you!

What is a Credit Card Loan?

A credit card loan is one that is pre-approved from your bank. Since, you already have a credit card with the issuer, all your personal and financial information is with the bank. Owing to this, credit card loans do not involve any specific documentation procedures and hence, are considered pre-approved.

A Credit loan can be said to be the fastest way of getting an unsecured loan. When you opt for a loan against your credit card, the loan amount gets deducted from your available credit limit and is eventually transferred to your bank account. It must be noted that a loan against a credit card is not the same as cash withdrawal using a credit card.

When to apply for a Credit Card Loan?

You should apply for a credit card loan only in the following situations-

  • If you need cash in case of an emergency
  • If you need to meet expenses of a relatively smaller amount
  • In case you are not eligible for a personal loan (or any other type of loan)

What is Personal Loan?

A personal loan is an unsecured loan that may be borrowed from a bank for bigger expenses. Generally, personal loans are taken in case of medical emergencies, purchase of a property, starting a new business, etc. Being unsecured, personal loans charge high interest rates. Also, since the loan amount, in most cases, is huge, these types of loans have a relatively longer duration for repayment.

Any individual can opt for a personal loan from any bank. Hence, when you apply for a personal loan, you have to first prove your eligibility for the same and then go through a strong application and verification process to get the loan.

When to apply for a Personal Loan?

You should apply for a personal loan only in the following situations-

  • When you need to meet expenses that involve a huge amount of money
  • If you have at least a week’s time to wait for the loan amount
  • When you decide to buy yourself a car, a house or start a business of your own

Credit Card Loan vs Personal Loan

Even though both the types of loans have multiple similarities in terms of credit provisions, such as the offering of a fixed amount at a pre-approved rate of interest, monthly payments of principal and interest amount, additional charges on late payments, etc. However, even after these similarities, there are many differences between credit card loans and personal loans.

Read More: Credit Card Loan vs Personal Loan: What’s the Difference?

Let’s take a look at some of the most common differences in order to find out which one would you better-

FactorCredit Card LoanPersonal Loan
Application ProcessThese loans do not require any additional documentation since the lender already has your personal and financial detailsYou will be asked to present certain documents to apply for a personal loan for the purpose of verification
Loan AmountThese loans are suitable only if you want to borrow a lesser amountThese loans should be preferred in case of a larger loan amount
Loan durationCredit card loans have a shorter tenurePersonal loans have a rather longer tenure for repayment
Additional expensesCredit card loans do not have any additional expenses apart from the interest chargesLenders charge processing fees and other expenses on personal loans, apart from the interest charges
EligibilityOnly the credit card holders can apply for this type of loanEven non-customers of the bank can apply for this type of loan
Payment of loan amountThe loan amount is transferred directly to the savings/current accountThe loan amount is paid as a lump sum to the applicant’s savings/current account or via cash/cheque
Time required for approvalA credit loan is generally approved within 24 hours of applicationA personal loan is generally approved within 3-5 working days
Repayment of loan amountThe loan amount must be paid in monthly installments as part of your monthly credit card billThe loan amount must be paid to the bank in pre-specified installments, within a pre-approved time period
Maximum loan amountThe maximum borrowing limit depends on the pre-approved credit card limit set by the credit card issuerThe maximum loan amount is decided by the bank depending upon the borrower’s income

Pro Tip: Before you decide to go ahead and take a loan, whether a credit card loan or a personal loan, it is important to analyze your financial requirements and your ability to repay the same. Borrowing a loan from a bank may be easy, but repaying the same involves a lot of patience and may also feel heavy on your pockets, looking at the high interest rates. Additionally, you should only borrow the amount that’s absolutely necessary. If you have smaller monetary requirements, then a credit card loan would be the best option for you.

FAQs
Is a personal loan better than credit card debt?
Both the types of loans have their own features, advantages and disadvantages. You must decide which loan to borrow only on the basis of your requirements. If you need a huge amount of money to meet bigger expenses, then you can opt for a personal loan; else, a credit card loan would be a better option.
Do personal loans impact the credit score?
No, personal loans do not have an impact on your credit score. In fact, if you repay your personal loan on time, it may help you improve your credit score instead of affecting it negatively.
Can I take a loan using my credit card?
Yes, you can borrow a loan against your credit card. Such type of loan is called a credit card loan, and should be opted in case of smaller expenses that can be repaid in a shorter time duration.
I need only a smaller amount of money for my vacation. Which loan should I opt for?
Since you need only a smaller amount of money as loan for your vacation, you should definitely consider borrowing a credit card loan.
What is the difference between a credit card loan and a personal loan?
Credit card loans and personal loans are different in terms of the interest charges, repayment tenure, maximum loan amount, eligibility conditions, and application process, etc.
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