Finance

Personal Loan Vs. Credit Card: Which is the Better Option?

In India, personal loans and credit cards are two of the most popular financing options. Both these financing avenues have changed the way we perceive and access financing. From being a burden, it became a boon. Today, people opt for these financing options for fulfilling lifestyle improvement, aspirations, and meet their emergency needs. Both these credit options come with their short-term perks as well as benefits in the long run. For instance, an instant personal loan is readily available today against simple eligibility requirements.

When considering the two funding options and the feasibility of one over the other, it is important to know the minute details related to both. So, below is a detailed insight that will help you determine which one fits you better.

Personal Loan

What is an Instant Personal Loan?

An instant personal loan, as the name suggests, is a financing option readily available to meet your funding needs with ease. The financing is available in a lump sum and you can meet big-ticket expenditures with the loan suitably. These loans come with set tenures for repayment, which can extend between 6 months and 5 years depending on the lending institution selected. These advances are thus also known as short-term or mid-term loans.

These instant money loans come with low rates of interest, which make repayments affordable. You can repay them in easy EMIs too as the total liability is kept in check thorough low interest accumulation. When availing a personal loan, you can use a personal loan EMI calculator to check affordability and apply for your loan accordingly.

When to use a personal loan?

A personal loan can be a suitable financing option when you need lump sum funding to pay for your expenses. With the best lending institutions, like some popular loan apps today, you can avail a personal loan of up to Rs.1.50 Lakh with ease. The eligibility requirements are basic and easy to meet. The documentation has also been simplified and you can complete them through online submission.

Right from paying for emergency medical financing, to meeting wedding, travel, and higher educational expenses, and so much more, these loans are available for all financing needs in one. A personal loan can also be a suitable financing avenue if you have business expenditure to meet or pour capital into your newly established venture.

What is a Credit Card?

A credit card is more of a cyclic financial instrument that comes with set utilisation limits for credit. The financing arrangement of a credit card is such that the lending institution provides a set funding limit for particular duration known as the billing cycle. This billing cycle usually extends to a one-month period. You can utilise the amount within this duration as and when your funding needs arise and repay the utilised amount on the bill due date. The due date usually comes almost 45 days after the commencement of the billing cycle.

The catch in this financing arrangement is that with the total funds utilised in a given billing cycle, the credit limit is reduced by that amount until fully repaid. So, if you miss out on paying your bills for a certain cycle, it will restrict your credit limit by the due amount. It is, however, a prudent financial practice to make your credit card bill payments on time.

When to use a credit card?

Financing through a credit card is usually suitable for meeting your everyday and recurring funding needs conveniently. Even though you can use your credit card for making lump sum payments, it can be very expensive, as credit cards have very high interest rates. You can also make cash withdrawals using your credit card but this facility comes with heavy charges.

How to Determine Which Financing Option is Better?

An instant personal loan and credit card are entirely different in their modes of operation and repayments. They are also designed to serve different purposes. Thus, the futility of each depends on the financing requirement that you need to fulfil.

For instance, if you need lump sum funding, a personal loan is suitable. Contrarily, a credit card is more useful for making regular payments like daily essentials, movie bookings etc. For such usage, you can earn reward points and offers on your credit card. It is also easy to repay this amount at the end of your billing cycle. Using your credit card for your regular expenses will give you an opportunity to review your monthly expenses and find ways to save more.

However, you must also consider the interest rates chargeable on these financing options. Interest rates are significantly high for credit cards as against personal loans. So, if you want to opt for EMI option on your credit card, checking out personal loans would be a smart choice.

You should consider a personal loan if want to make the repayment over an extended period in the future. If the expenditure is easy to fulfil within a month, a credit card can be your option.

Conclusion

With these considerations in place, you can determine whether to go for an instant personal loan or a credit card to meet your financing needs conveniently. Make sure you have checked the eligibility and document requirements for whichever financing option you choose to avail and apply accordingly for easy approval and disbursal.

Note that both instant money loan and credit card are unsecured financing options. You can use them to fulfil varied needs without any restrictions. However, both are debt instruments and you must be very cautious while using them.

Leah Leonard

Coffee expert. Troublemaker. Typical music guru. Friendly beer fanatic. Introvert. Web specialist. Uniquely-equipped for implementing bullwhips in Ocean City, NJ. Spent a year importing licorice in Hanford, CA. Have some experience licensing cigarettes for the government. Once had a dream of selling toy monkeys in Las Vegas, NV. Spent the 80's working on hula hoops in Minneapolis, MN. What gets me going now is working with action figures in the government sector.

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