Whether you want to meet urgent funding requirements or pay off debt, you can rely on two financial options: a credit card and a personal loan while you can use the private investment in the form of debt consolidation loan and pay off multiple debts at once by servicing just one personal loan EMI every month. You can use a credit card to fund short-term and immediate needs. While you can apply for both credit cards and personal loans online, they serve different purposes.
To know the answer to the question, ‘What is the difference between a personal loan and credit card?’ Read on.
In case of a credit card, the credit limit, which is calculated based on your income and other factors, is your borrowing limit. Conversely, personal loan lenders calculate your borrowing amount based on several factors, such as your income and credit history. You can use the personal loan eligibility calculator to check the loan amount you qualify for before applying.
Meaning And Purpose
A credit card is known as plastic money, but it is essential to remember that it offers you a credit limit based on your income, using which you can pay for expenses. It is an excellent option to pay for your day-to-day expenses like utility bills or to purchase goods and services. However, you can also use it in a short-term cash crunch for both personal and professional reasons. The amount that you utilise is like a loan that you have to pay in the next billing cycle.
A personal, on the other hand, is a collateral-free funding option that you can use for any purpose, without any restriction, up to the sanctioned amount. This is an excellent solution if you need funds for big-ticket expenses or urgent requirements. For instance, you may fund your child’s tuition fees, a family vacation overseas, a wedding in the family, or a home renovation project. A personal loan is also called a debt consolidation loan, as it helps you pay off multiple debts that you may have.
In case of credit card, the issuer assigns you a credit limit, from which you can make multiple payments until you exhaust the limit. In contrast, lenders of a personal loan offer a lump sum disbursal and charge interest on the entire amount. However, lenders like Bajaj Finserv offer a flexible personal loan that lets you make multiple withdrawals from your sanction and pay attention only to the amount utilised. This way, you can save big on the investment.
A credit card issuer bills you every 25 to 31 days for the amount that you utilise. You also get a grace period of 20 days where no interest charges on your dues. If you fail to pay your dues by the end of these 45-51 days. Your outstanding amount attracts the applicable interest rate.
Conversely, if you pay the bills on time, you don’t have to bear interest. Your limit is replenished to that extent. Remember that the credit card interest rate is usually very high, even when compared to loans, so plan your monthly repayment on time to avoid a debt trap.
Conversely, interest rates on personal loans decide EMI amount that you need to pay throughout the agreed tenor when it comes to repaying a personal loan. EMIs consist of both the principal and the interest. Failing to pay an EMI attracts a late penalty and penal interest. Some issuers like Bajaj Finserv allow you to pay interest-only EMIs throughout the tenor and repay the principal only in the end when you choose the flexible personal loan. This way, you can manage your cash flow better. Doesn’t this provide a great answer to the question, ‘Is it a good idea to take out a personal loan?’
Based on the above distinctions, you are now on the right track to choose between a personal loan and credit card loan. No debt is wrong if you manage it well. If you use credit diligently and repay it regularly, you can build an excellent credit score. So, if you are wondering, ‘Are personal loans bad for your credit?’, the answer is no. Both credit cards and personal loans help you build a credit score and maintain your credit score too.
What is the best personal loan?
To build your credit score, you can avail a personal loan of a small amount and repay it in a timely fashion. To answer the question, ‘What is the best personal loan?’ Do a little research of your own and compare lenders based on ease of application, eligibility criteria, and cost-effectiveness. When scouting for a personal loan, choose a lender like Bajaj Finserv that offers simple personal loan eligibility criteria and minimum documentation, making it one of the best personal loan deals available today. This way, you can enjoy instant approval and disbursal within 24 hours of support.
With this loan, you can access high-value amounts of up to Rs.25 lakh at nominal personal loan interest rates. With such a hefty sanction, you can use this as a debt consolidation loan to get out of the debt cycle in no time if you are wondering how to apply for a personal loan. The process is comfortable, no matter whether you want to do it online or offline. Fill in the particular application form, submit the required documents and await approval. This process becomes even more comfortable when you check your pre-approved offer by providing necessary details like your name and contact number. This way, you can see a customised deal awaiting you and can benefit from instant approval!