Personal Loan Vs Credit Card: Which One to Opt For?

Financing sudden and urgent expenses has become quite easy and simple with the use of financial tools like credit cards and the wide availability of personal loans. While both personal loans and credit cards offer quick solutions to your funding problems, choosing the right option is the key to good financial management. Before you decide to apply for a credit card or a personal loan, a comparison of the purpose and the terms and conditions involved is essential.

Comparing a Personal Loan with Credit Card

The two types of funding options differ on several counts:

• While a personal loan is an unsecured loan that can be taken for funding several expenses including medical expenses, marriage expenses, an expensive purchase or a holiday, a credit card is a pre-approved loan.
• Another significant difference between the two financing options is that a personal loan requires some documentation while a credit card loan does not require any documentation. You can take a certain part of the unutilized portion of your credit card limit as a loan.
• The full amount of a personal loan is disbursed to the applicant after approval. The credit card can be used multiple times at various shops or places accepting credit cards.
• The personal loans carry interest rates and can be availed for a period of one to five years while a credit card offers interest free credit of up to 45 days after which the due amount attracts interest.
• The personal loan is sanctioned based on the applicant’s income and his credit score reflecting his creditworthiness. In contrast, a credit card is issued with a pre-determined monthly credit limit decided based on the applicant’s income.
• The interest rate in the case of a personal loan is the same for the whole duration while in the case of a credit card there is no interest for the credit cycle period but the interest on the amount due after the cycle period is quite high.

The choice between using a credit card or seeking a personal loan will depend on:

• The amount required: When the amount required is significantly high you should opt for a personal loan and in case you need a smaller amount, a credit card is a better and cheaper option.
• The duration for which you need funds: If you need a small amount of funds for a short duration that falls within your credit cycle you should opt for a credit card. However, if you need funds for a longer duration, a personal loan is a better and more feasible option.
• When and Where do you need funds: In case you are out shopping and need funds to pay for it, a credit card is incredibly useful. Similarly, credit cards are highly suitable for online payments. However, if you need money to fund a big expense, a personal loan is a better option.

So, the decision to choose a credit card or a personal loan to fund an expense will depend on the purpose for which you need it, the duration, and the place where you require it. Immediate requirements are better funded by a credit card while a large amount of funds that cannot be repaid in a short period should be funded by a personal loan of long duration.