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.