A friend of mine needed money recently to support his family. Even if he did have an emergency fund, he didn’t want to spend it all at once. Then he asked me how quickly he might get a personal loan and if he should use a credit card instead.
I told him that credit card interest rates are much higher than personal loan rates. However; it is now possible to get a personal loan really quickly through banking apps or different websites. We shall compare the two options shortly.
But first, let me remind you that credit is readily available. However, you shouldn’t overdo it and take on unnecessary debt. Only take out loans for the specific amount you require. Consider the EMIs as well and if you can comfortably service them.
Let’s understand in detail.
Instant Personal Loans vs Credit Cards:
There are two financial products i.e. Credit cards and instant personal loans which can be comparable. Both let you avail of a loan at a predetermined interest rate from a lender. Monthly payments (EMI) are required to be paid to a lender to cover the principal and interest on the borrowed cash. But there are some significant distinctions between the two choices.
Should you discover that you want additional funds, you can have to make a choice. Should I apply for a credit card or take out an instant personal loan?
Instant Personal Loans:
Although you receive instant personal loans faster than ordinary ones, they are similar to regular personal loans. Unsecured personal loans are those that don’t need collateral and can be taken out for any reason.
The amount that your lender gives you in one lump when you apply for a personal loan. The amount of time you have to repay the loan in monthly installments is limited. Banks, credit unions, non-banking financial institutions, and Internet loan applications all provide these kinds of loans. The guidelines, interest rates, and periods of repayment will vary depending on the lender.
Instant personal loans are often unsecured loans. This indicates that no collateral is needed. Additionally, these loans may be utilized for several things, such as debt consolidation, home renovation, and unexpected medical expenses. The loan is perfect for any emergency costs because the lender disburses the funds in a few days. It is therefore a practical and adaptable financial product.
The eligible conditions of a personal loan are a significant contributory aspect. Compared to credit cards, the requirements for applying for personal loans are typically more relaxed. Although you must have a source of income each month, there are fewer restrictions on your credit score. Applications and approval processes may be completed entirely online with several lending applications.
Credit Cards:
You must already be familiar with credit cards. A credit card is simply a revolving credit line that allows you to access money up to a certain limit, even if you have it in your bank account. When you make purchases, you might deplete those funds, and you’ll then have to repay the loan. Interest is charged on the outstanding balance if you fail to repay the loan in full within the agreed time frame. Compared to personal loans, these interest rates are frequently significantly higher.
Making payments through Credit Cards is one of the most popular methods. Almost all offline and online outlets accept credit cards as payment methods. Further, to boost spending, various attractive schemes such as cash-backs, rewards, and prizes are offered on credit cards. However, the credit card eligibility requirements are stricter than those for personal loans. It would be better if your credit score (such as CIBIL) is higher to get a credit card with favorable terms & conditions. Further, if you pay off the dues in time, you may get additional offers or an increased card limit.
Which is a better choice?
Both credit cards and instant personal loans have advantages. Instant loans are only one-time loans even if there is a reduced rate of interest. You must repeat the application process if you ever need to borrow money again. More frequent access to funds is provided by credit cards. Furthermore, you only pay the interest amount if you accrue an o/s. balance but the interest rates are higher.
For instant personal loans, the loan term is longer. It enables you to pay back the money over a longer time frame—three or five years, for instance. Conversely, credit cards provide shorter loan terms and lesser borrowing amounts. Credit cards, on the other hand, are preferable if you want cash for several expenditures. Additionally, because instant personal loans have a low interest rate, they are preferable if you need to consolidate your debt.
To put it in a simple word, the advantages of instant personal loans are that a larger amount of money can be borrowed at a time and that too with a lower interest rate. Further, you have a longer time to repay it. However, Credit Cards provide steady and continuous access to money and other benefits in the form of rewards and offers.
Deciding factors to choose between Personal Loans and Credit Cards:
You can choose by asking a few questions as listed below,
- How urgent is the need that you have?
- How much cash are you in need of?
- What is the interest rate that you are paying?
- How much is the processing charge?
- Do you have to pay in advance?
- What are the penalties/consequences of non-repayment / what if you miss the installment?
You should choose between personal loans and credit cards based on what you need. If you spend money mindfully, confident that you will be able to pay your credit card payment in time and you need something in an emergency, credit cards will work for you. But if you have the tendency to opt for credits all the time and you are a spendthrift, then apply for a loan as it will reduce the occurrences of for opting a loan.
Always remember that you can be trapped in debt badly if you take out unnecessary loans or credit card debt for unimportant purchases.
Warren Buffett — “If you buy things, you do not need, soon you will have to sell things you need.”
Also Read: