Personal loan is the type of financial tool that allows the borrower to get funds during emergencies to meet their expenses. With this financial tool you can meet all your personal expenses and even buy consumer durables and other items for your personal use or gift. On the other hand, credit card is the type of financial tool that owner uses for making any kind of purchases until they reach the pre-determined credit limit. This financial tool comes with a credit limit that prevents you from overspending. Spending above the credit limits leads to penalty which can affect the credit score adversely. However, you can also apply for credit car loan based on the credit limit you have in your credit card. But there is a difference between personal loan and credit card loan which we will discuss below.
What are Credit Card Loans?
Credit card holders are eligible for credit card loan based on their credit history and credit limit. These are actually a pre-approved loan which is either over credit limit or within credit limit. The users can make the monthly repayment at the pre-determined date along with pre-fixed interest rates. However, different credit card issuers have different eligibility criteria for the credit card loans and you need to check this before applying for one. Monthly repayment for the credit card loan is must or else it may lead to heavy penalty on the credit card holders. The interest rate of credit card loan is much higher and you are also charged processing fees for the credit card loan. There is also a pre-payment penalty charge for the foreclosure of the credit card loan. No collateral and documentation is required for the credit card loan.
What Are Personal Loans?
Personal loans are the personal finance loans that are unsecured in nature and it is usually taken to meet the emergency financial needs. Since it is the unsecured type of loan it demands for collateral or any mortgage. Moreover, the credit score or e CIBIL of the applicants are also checked prior to giving approval for the personal loan. Without mortgage or collateral it would be risky for the financial institutions to approve the loan and if it is approved without collateral then the interest rates would be quite higher.
Different Between Credit Card Loans and Personal Loans!
The only similarity between personal loans and credit card loans is that both the loans are approved only after accessing the creditworthiness of the applicants. The credit card loans are approved instantly and quickly because the card issuer already knows your history, income and monthly card payment patterns. In order to apply and get approved for credit card loans applicants are required to contact the card issuer and request for a credit card loan. If the issuer finds you eligible for the loan, then the amount would be credited to your account in 48 hours of application. The credit card loans usually come with higher processing fees which range from 0.5% to 1% and as mentioned there is a pre-closure charge for credit card loans which range from 2% to 5% of the principal outstanding loan amount. The credit card loans usually come with the option to choose the repayment tenure which can be as low as six months.
On the other hand, personal loans usually take 48-72 hours for getting approval from the financial institutions, especially if you have supported the application with all necessary documentation. All the process is handled online and you are required to attach the attachment with the application process after downloading it from the bank website. There is no pre-payment penalty with the online personal loans and hence you can go for pre-closure of the loan without worrying about any penalty charges. The customers can have the shortest repayment tenure of 3 months and it can be as long as 12-24 months also. The interest rate is also high as compared to traditional mortgage loans, but not more than the credit card loans.
Both the loan options offer ample benefits and depending upon your financial scenario you need to apply for it. You must not overburden yourself with loan amount and hence you need to apply for the amount that you actually need.
Robert O Pierce has been a writer and editor for more than three decades, the last of which have been in the financial services industry. When he’s not revising his budget spreadsheet or looking for the latest and greatest rewards News, you might spot Louis at the rock climbing gym in Oakland, California.