Credit cards vs. Personal loan

Either a credit card or a personal loan is the most popular financial assistance during any financial emergency. Subject to the nature of your crisis, you can opt for either. We will help you in selecting the one that is best for you.

You can decide to take a loan from friends and relatives or money lenders. But these alternatives may always not be beneficial. So, you can seek the help of credit cards or personal loans. Today, we shall discuss the main features, benefits as well as the fine print of both these lending alternatives.

 Credit card

A credit card is a cashless financial instrument that lets you pay or utility bills, shopping online and offline, travel tickets, and much more. Let’s look at the advantages:

  • Credit cards can be useful in cases of unexpected situations such as medical emergencies or job losses.
  • You can use it in India or globally.
  • You can purchase products and pay in Equated Monthly Installments (EMIs).
  • Discounts can be enjoyed when shopping in stores and online.
  • You can earn reward points on credit card purchases. Those points can be collected to help you get free airline tickets and gifts.
  • Many cards also have cashback features available.
  • You can improve your credit score by paying the EMIs on time.
  • Nominal processing fee.

Things you require to be cautious about

  • Credit cards can cause serious problems if they are not used correctly.
  • Quite often, people overspend when using a credit card and ending up damaging their credit score.
  • You stand to lose more money in the form of late fees if you default on credit card payments.
  • There are growing instances of credit card scams across India, and you may have to pay a hefty price even if you get negligent in its use.

Let’s have a look at personal loans now:

A personal loan is a credit service extended by the banks and other financial institutions for marriage, medical emergency, personal use or education. Let’s have a look at the advantages of personal loans:

  • A personal loan is a multi-purpose lending facility to cover medical expenses, travel expenses, purchasing jewellery or education, etc.
  • Since it is faster to avail, you get instant personal loan making it ideal for people looking to get emergency funds assistance.
  • Compared to a car loan or home loan, a personal loan does not require tons of documentation.
  • There is no requirement for any collateral or security to apply for a personal loan.

You may very quickly get a personal loan, but there are certain drawbacks that you must be aware of before you go for this option. Here are the disadvantages:

  • If you don’t get a very good loan facility, the interest rate on a personal loan can be very high. Your eligibility for personal loan can be the deciding factor of the interest rates.
  • Part payments can be expensive because you may have to pay a certain amount of the loan as an advance payment.
  • If you have a poor credit score, banks and financial institutions will be hesitant to extend your personal loan as they see it as risky. Ensure to verify your personal loan eligibility if you want to avail a loan.

You may get a personal loan from banks even if you have a poor credit score. However, you will be required to pay a higher interest rate, unlike the ones who have a good credit history.

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