Loan Tips: How to choose the right loan? Credit card or personal loan?

In times of emergency financial needs, arranging money immediately becomes a challenge. In such a situation, people often choose the option of a personal loan or a loan on their credit card. In both of these options, you get a loan without pledging anything, but still, they are quite different from each other. Making the right choice between the two is very important for your financial situation. So let's understand how a loan on a credit card works and when it can prove to be better than a personal loan.

How does a loan on a credit card work?
The loan you get on a credit card is a kind of pre-approved loan, which the bank gives on the basis of your credit score and credit card usage. This is not a normal credit card purchase. For this, the bank gives you a part of your credit card limit in the form of cash, which you can transfer directly to your bank account. Although the process is very fast, and there is no paperwork involved.

Personal loan vs. credit card loan

There are some special differences between the two types of loans, which are very important to understand-

1. Interest rate:
Let us tell you that the interest rate of a credit card loan is usually much higher than that of a personal loan. By the way, the interest rates of personal loans can be around 10-24%, while the rates of credit card loans can be around 15-30% or even more.

2. Loan amount:
In a personal loan, you can get up to a large amount based on your own income and credit score. At the same time, the amount of credit card loan can depend on the limit of your credit card, although it is less.

3. Processing time:

Indeed, credit card loans are often available instantly, but personal loans can take a few days to get approved and get the money into the account.

4. Payment timing:
The payment timing in personal loans can be from 1 year to 5 years, which makes the EMI less, but the timing in credit card loans is shorter, which can make the EMI a little higher.

When should you take a credit card loan?

A credit card loan can be better than a personal loan in certain situations:

Small amount and immediate need:

Sometimes you suddenly need money for a small expense, like a medical bill or the repair of something.

Emergency payment capacity:
When you know that you can repay the full loan amount in the next few months, and if you do not want to pay high interest rates for a long time, then it will be right.

Avoid paperwork:
If you are short on time and want to take a loan immediately without any paperwork.

When is a personal loan a good option?

Need for a large amount:
If you ever need a large amount of money, like for marriage, home renovation, or any major medical expense, etc.
Low interest rate:
If you want to keep the cost of loan interest low, then taking a personal loan would be a good idea.
Long term payment:
If you need a long time to repay the loan, so that the EMI is low and more manageable.

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