Credit Card vs Personal Loan: Which is better?

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Updated: November 14, 2019 3:16:24 PM

Credit Card vs Personal Loan: Is credit card better than personal loan to meet the shortage of funds? Or, the opposite is true?

credit card vs personal loanIs credit card better than personal loan? FInd below. Representational Image

Credit Card vs Personal Loan: Is credit card better than personal loan to meet the shortage of funds? Or, the opposite is true? Experts say the exact answer to this question will depend on the situation in which credit has been sought by someone. In other words, both credit card and personal loan can be beneficial in different circumstances. Credit Card allows users to spend now and pay the due next month, while personal loan can be repaid in fixed monthly instalments at a fixed rate.

Sandeep Singh, Co-founder, PayMe India, told FE Online, “Usage of both the tools is different. Personal loan is preferred when the amount required is high and the tenure of expected payment is long. A credit card is used for small purchases with the intention to payback within the payment cycle of the card.”

Making a comparison of the two options, Singh said the rate of interest in personal loans is lower than the interest charged on overdue credit cards. Secondly, with personal loan, one can receive a lump sum amount at the time of need and pay it back in a longer duration, usually, one to five years through friendly EMIs. The interest rate on the personal loan is also negotiable with the bank in many cases. This facility is not available with Credit Card.

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A personal loan is fixed for the entire repayment period, means one has to pay the same interest rate even if the bank revises it in the future. So, no worries about future uncertainties.”

Singh said that the most significant advantage of personal loan is that you can use the received fund for a variety of purposes such as foreign tour, repayment of the previous loans taken from a friend or relative, and utilising it to purchase something that family requires badly. However, he concluded, “Remember, both these tools have their own set of benefits, but it all depends on the credit score that the person has.”

Credit card can be used 24×7. It can be beneficial for those who follow financial discipline. “With a good financial discipline wherein credit card payments are always made in full by the due date, it is a beneficial credit channel but straying can lead to heavy losses,” said Sangeet Modi, Director, IndiaMoneyMart.

One advantage of credit card above personal loan is that the credit is available instantly. You can make purchases with the credit card whenever you want. In case of personal loan, the credit availability may take some time and the total amount will depend on the credit-worthiness of the applicant.

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