Credit Card vs. Personal Loan – Which one is right for you?

21 February, 2019

by Abhijeet Kumar

What would you do when you suffer a cash crunch? Well, you don’t have to empty your savings. Personal loans are there for that reason, to pull you out from the monetary emergencies. But, is a personal loan right for you or should you pull out your credit card?

While credit cards offer you an interest-free period (usually 30-45 days) for the due amount, those interest rates sky-rocket if not paid on time. So, for a longer duration and a large amount, personal loans are better. Also, not everyone is eligible for credit cards.
So, personal loans or credit cards, which one is right for you? Let’s find out.

How do Personal Loans work?

Personal loans are unsecured loans taken for a large amount and a long-term (more than a year usually). You submit the documents required, and when the loan is approved, you get the loan amount in your account.

Benefits of taking a Personal Loan

• You are free to use the money for any purpose you like, be it for a wedding, education, buying a car or renovating your home.
• The loan repayment is done in small monthly installments over an extended period.
• Personal loan interest rates are cheaper than credit cards.
• You can qualify more easily for a personal loans than applying for a credit card.
• Personal Loans can be used for debt consolidation.

Additional Read : 5 Personal Loan Tips for Salaried Employees

Drawbacks of taking a Personal Loan

• A personal loan has fixed monthly payments to be made on time. Failing to do so attracts late fees, and affects credit score.
• Unlike credit cards, you have to pay charges upon prepayment of personal loans.
• You have to pay processing charges upfront.

When is personal loans better than Credit Card?

• When you want to purchase, say, a car or bike and want to pay the amount over a period of time.
• When you have to pay off credit card debts; Personal loans come with lower interest rates.
• When you need a large amount, say two lakhs or more, not within your Credit Card limit.

How do Credit Cards work?

As the name suggests, Credit Cards provide you a credit which is to be paid within a month or so. You get a monthly limit which you can use for purchases or taking out advance cash. And you can pay the “borrowed” amount in full without any interest charges if it’s within the “interest free” period.

Benefits of taking a Credit Card
• You can use your credit card for daily expenses or small purchases.
• You can borrow multiple times, instead of taking out a lump sum amount.
• You can avoid paying any interest charges.
• Many cards offer rewards like cashbacks, travel points or dining points on your purchases.
• You can choose to pay the credit card debts at a later date.

Additional Read : 5 tips to manage debt wisely

Drawbacks of taking a Credit Card

• Not everyone is eligible.
• Credit cards come with variable monthly interest rates.
• Credit card interest rates soar higher as time passes.

When is Credit card better than Personal Loan?

• When you want to borrow small amounts as per need, multiple times.
• When you know, you can clear the debt within a month or so.
• When you want to accumulate travel points, food discounts or maybe a complimentary hotel stay.

Credit Card vs. Personal Loan

Listed below are the major differences between credit cards and Personal loans

Credit Card Personal Loan
Purpose of Loan Used to make small purchases like gadgets, appliances, tickets and the others alike. Taken for bigger expenses like children’s education, medical emergencies, wedding, etc.
Application Process One-time process and then, you can use your card online or offline whenever needed. You visit a loan provider, submit required documents and get the loan. Monexo personal loan, however, is completely online.
Rate of Interest Goes high when you keep deferring the payment. A personal loan with reducing balance interest rate is far more economical than a credit card.
Loan Amount Comes with a predetermined credit limit. Calculated based on your credit score and income.
Mode of Repayment Paid in full (or parts) at the end of the credit period. Paid in fixed EMIs during the approved loan tenure.

So, which one should you go for?

Credit Card or Personal Loan – Which one is better? While credit cards allow you to borrow and pay as you use, it’s the convenient interest rates, which make personal loans a great choice. Monexo personal loan rates, for example, are as low as 12.98%. But, before going for either of the options, find why you need the money and how much you require. To pay for small personal needs, use your credit card. Go for the instant personal loan by Monexo though, if you need some large amount. Also, find out how soon can you repay. Credit cards are good if you can pay off the debt by the end of the “interest free” period. Choose a Personal loans if you need a considerable time to repay. Additional Read – P2P borrowing vs. Bank loans? What is the Difference? Monexo is a P2P lending platform and the process to apply for a loan is straightforward with minimal documentation. The entire process is online and once approved, you will have the loan amount in your account within hours. You can get a loan of up to ₹5,00,000 which you can then, pay in flexible EMIs. So, are you interested in low interest rate personal loans? Apply online.