Credit Card or Personal Loan: Which is Better?

Today, if you need to avail of extra credit, there are several options you can consider. Whether you have to take care of financial emergencies or make significant purchases, the two most popular options you can avail of are credit cards or personal loans. A credit card is already a top-rated facility, thanks to the 'buy now, pay later' option that they carry. They're also convenient because you can swipe your credit card for all your purchases. A personal loan has also seen a high uptick in the number of borrowers over the last few years, thanks to the sheer convenience it offers. In addition, it's an unsecured form of borrowing, which means that you don't have to worry about collateral. The application process is also very swift, so you don't have to wait too long. But which of these two options is better? This blog will explore exactly that. Read on:

1. Interest Rate

Whether it's a private loan, personal loan, or credit card, we always check the interest rate while borrowing. This is not surprising as the interest rate is the primary factor that influences your loan's affordability. For example, for a loan amount of ₹1 Lakh payable over two years, a personal loan offer with an interest rate of 18% p.a. will cost you almost ₹8,000 more overall compared to a personal loan at 10.99% interest. Considering this factor, a personal loan or private finance loan is a clear winner over credit cards. The interest rate averages between 10.99% - 12.5% (if you have a high credit score). However, credit cards are notorious for having excessively high interest rates. Their average interest rate ranges between 36% - 40% per annum!

2.Flexibility in Payments

Nobody wants to avail of a personal loan or private finance loan with a very rigid payment schedule because it may cause them problems in the long run. While evaluating loan offers, you should look for flexibility in payments. In this regard, personal loans and credit cards have their features as well. With a personal loan / private finance loan, the monthly EMIs are fixed – you know exactly how much your monthly EMI is and when your loan will get over. So, that way, there's discipline (if you manage to stick with it) in payments.

On the other hand, a credit card offers you the facility of paying the minimum amount due after an interest-free period of 45-50 days. But if you choose to do this every month instead of paying the total amount, you will accumulate colossal debt. So, here too, applying for a private loan or personal loan is a better option.

3.Amount Available

While availing of credit, it's also essential to get adequate funds so that you can meet all your needs entirely without worrying. That's why the amount available also becomes very important, regardless of the type of credit required. For example, a personal loan or private finance loan comes with a credit limit of up to ₹5 Lakhs, but a credit card will only give you a limit of ₹50,000 - ₹1,00,000. So, as you can see, a personal loan is a winner in this regard as well.

Wrap Up

We've tried comparing personal loans and credit cards against standard parameters in the points mentioned above. These parameters (loan flexibility, interest rate, and credit limit) are common factors everyone considers before borrowing, and you should too. Just ensure that you apply for a private loan / personal loan only as a last resort. Also, never borrow if you don't have the capacity for timely EMIs.

 

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