Personal loan vs Credit Card
Be it a marriage, a family vacation or even an emergency medical expense, you need money for everything and the best avenue to get instant funds is a personal loan. You can use a personal loan as any corpus. From medical use to personal use or even to pay off old debts, a personal loan will always be a go-to avenue.
On the other hand, credit cards are a handy lender. If you have a credit card, you can use it anytime and anywhere within the credit limit. Unlike personal loans, a credit card will have a short period of repayment window, post which it will start to incur interest.
What is a Personal Loan?
Personal loans are usually unsecured loans that any bank or financial institution provides with a certain interest rate, which means you don’t have to put in collateral against the loan. The interest rates vary from lender to lender, and the tenure for the loan can be between 1 year and 5 years. The loan amount and interest rate will be divided into EMIs, which will be paid throughout the tenure as a repayment. You can also foreclose the loan at the lender’s discretion.
Eligibility for Personal Loan
There are multiple eligibility constraints when it comes to a personal loan. The most common criteria are:
- Source of income: A person should have a standard and regular source of income to apply for a Personal loan. Be it salary or income from a business; you are eligible as long as it is regular and meets the minimum requirement for the loan.
- Age: Age is an important factor because anyone below 18 years can not apply for a personal loan. Moreover, some lenders limit the maximum age at 60 years for eligibility. Hence, if you are anywhere between 18 years and 60 years of age, you are eligible for a loan.
- Employment: If you are employed in the private or public sector, you should be employed for a minimum of 1 year. Although some banks bend their rules about employment, being employed regularly for at least 1 year is needed.
Additional Reading: Top Banks for Personal Loans in India
How can you apply for a Personal Loan?
There has been a transition in the ease of application for personal loans due to immense competition in the market. Here are a few easy steps to apply for a personal loan:
- Step 1: Find out your need: Always evaluate your need and calculate how much funds you need for a loan. It is always good to ascertain the need and always apply for some additional amount.
- Step 2: Check your eligibility: You can check your personal loan eligibility either online or by contacting any bank. Once you are clear with the eligibility criteria, you can proceed with the loan.
- Step 3: Approach the bank: Once you calculate your requirement and ascertain the EMI for your desired term online, you can approach your nearest bank branch and apply for the loan.
- Step 4: Once you submit your documents, the bank can further proceed with your application, and once everything is all right, the bank will proceed to confirm the loan.
Pros of a Personal Loan
- Multifaceted: As we have discussed earlier, personal loans can be used as a corpus for any requirement ranging from medical to marriage. No matter your requirement, you have a personal loan to fulfil it.
- No fixed limit: There is no limit to the availability of a personal loan. However, every bank has its own limit to availing of personal loans with respect to the eligibility of the applicant.
- Fast-track processing: With immense competition and digitalization, documents and applications can be processed in just 1 to 2 days. Some NBFCs even try to process the approval of loans in a matter of hours as well.
- Free of collateral: Most of the time, personal loans are free of any collateral, which means you need not put anything any collateral against your loan, which makes it more affordable and reliable as compared to other types of loans.
Cons of a Personal loan:
- Strict eligibility criteria: Personal loans have rather strict criteria as compared to other loans as it is an unsecured type of loans.
- Higher fees and penalties: These kinds of loans have higher processing and other fees, along with higher penalties, due to their fixed tenures and lump sum disbursements.
Additional Reading: What is the Lowest Personal Loan Interest Rate in India?
What is a Credit Card?
Are you on a shopping spree and running out of funds? Worry not! The credit card is here. A credit card allows you to avail of funds whenever you need them under a pre-fixed credit limit. You only receive the bill once a month despite the number of transactions you make in the same tenure.
Eligibility for a Credit Card
- Age: The applicant must be a minimum of 18 years of age in order to apply for a credit card. However, there usually isn’t any upper age limit for the same.
- Regular income: The applicant must have a regular income, either from a salary or an income from a business. However, this criteria is at the discretion of the issuing authority, usually the bank.
How can you apply for a Credit card?
- Check credit score: Credit cards are more or less associated with credit scores too. If your credit score is high, you can easily get a credit card.
- Compare the competition: There are many banks that provide credit cards. However, among these homogeneous offerings, many offers and facilities separate them from others. You can choose your fit accordingly.
- Fill out the application form and wait: There are almost all banks which facilitate an online application form for credit cards. It is easy and quick to go with. Once you fill in the application form, your form will be evaluated, and you will get a credit card via mail once your application gets approved.
Additional Reading: 5 Practical Reasons for Applying for Credit cards at an Early Career Stage
Pros of a Credit Card
- More Secure than cash: Credit cards are more secure than cash since they act like cash, and you do not need to carry large amounts of cash.
- A good way to build your credit: Once you take a credit card and use it as intended, it can help you build your credit value. Banks see your credit rating, and a credit card is a good way to increase it.
- Offers and benefits: Credit cards provide various offers, discounts and rewards points on purchases like fuel, movies, groceries and many more. These reward points can further be utilized for various purposes to make your use of credit cards worthwhile.
- Easy EMIs: Just like a personal loan, you can also pay your credit card’s outstanding bills in easy EMIs. You just have to contact the bank and convert your outstanding amount into easy EMIs with a tenure of a maximum of 36 months or as your bank allows.
Cons of a Credit card:
- Minimum due: Minimum due is a term everyone who uses a credit card comes across. Minimum due just lets you keep using the credit card but with extra charges.
- Hidden charges: Credit cards are not as simple as they look at times. There are some hidden charges which follow your transactions. Charges like processing fees, late fees and more.
- Easy to exhaust: Whoever uses a credit card knows very well that it is a slippery slope. Because once you start using a credit card, it is fairly easy to exhaust or overuse it, which might attract many charges.
- High rates: Credit cards are easy if you can adhere to their payment schedules as per your purchases. However, if you fail to stick to the repayment schedule, it can attract higher interest rates than any loan available in the market. Hence a disciplined and watchful usage of credit cards is advised.
Additional Reading: Credit Card Balance Transfer: A good way to Clear Out Your Debts
We have discussed everything related to personal loans and credit cards. Like, personal loans are one of the most sought instruments for funds when you need some for medical or any other personal financial purposes. In this day and time of competition, it has become fairly easy to avail of a personal loan as compared to previous years. Whereas, Credit cards are a go-to option for cash and have gained good momentum in recent times. These cards can be used for various purposes like shopping or paying bills when you don’t have cash or want to spend any, all the while availing benefits like offers, discounts and cash back. Despite being very lucrative, credit cards also have their drawbacks, like high-interest rates and hidden charges. However, even personal loans are not without their downsides. High fees and penalties for personal loans haunt a few people as well. Finally, be it a personal loan or a credit card, one should always ascertain and evaluate their needs and only then opt for any one of these. Both of them are easily available and can make some people use either recklessly, which one should always be wary of.