More and more people are borrowing today, and it has reached an unprecedented level. This includes household financial liabilities in India, as credit card debt and personal loans have touched a staggering ₹120.96 lakh crore as of the end of March 2024. This massive increase, caused by increase in borrowers compared to increased personal debt, highlights the growing relevance of the debate: credit card loan vs personal loan — and why choosing the right option is critical today.
Knowing whether a personal loan vs credit card loan suits your financial needs better can have a big impact on your purchasing power and repayment discipline, especially in light of government initiatives to reduce household financial strain.
A personal loan is a lump sum of money borrowed from a lender, often for specific purposes like home improvement, debt consolidation, or medical expenses. It typically comes with fixed monthly payments over a set term.
• Debt consolidation
• Large purchases (e.g., car, wedding expenses)
• Emergency expenses
• Fixed interest rate
• Fixed repayment term (e.g., 12-60 months)
• No revolving credit
A credit card provides a revolving line of credit, which you can use repeatedly up to your credit limit. Payments are made monthly, and unpaid balances accrue interest.
• Everyday purchases
• Building credit history
• Short-term borrowing for emergencies
• Variable interest rates
• Revolving credit line
• Rewards and cashback options
Personal Loan | Credit Card Loan | |
---|---|---|
Eligibility | Open to both bank customers and non-customers. | Limited to credit card holders. |
Loan Type | Unsecured — no collateral required. | Unsecured — no collateral required. |
Application Process | Certain documents are required for verification. | No additional documentation is required; the lender already has personal and financial details. |
Documentation | Requires multiple documents and formal verification. | Minimal or no documentation required. |
Approval Time | Typically approved within 3–5 working days. | Usually approved within 24 hours. |
Disbursal Method | Paid as a lump sum to applicant’s account or via cash/cheque. | Transferred directly to savings/current account. |
Loan Amount | For larger amounts depending on income and credit history. | Depends on the pre-approved credit card limit; suitable for smaller amounts. |
Borrowing Limit | Based on your creditworthiness, typically higher | Determined by your credit limit |
Tenure / Loan Duration | Longer repayment tenure (months to years). | Shorter tenure. |
Interest Rate | Comparatively lower, fixed interest rates (e.g., 6%–20%). | 15%–30% annually |
Interest Type | Usually reducing balance — interest decreases as principal is repaid. | Flat rate typically — interest charged on full amount throughout tenure. |
Repayment Structure | Fixed EMIs over a defined tenure; structured plan. | Added to monthly credit card bill; more flexible but higher risk of revolving debt. |
Additional Charges | May include processing fees and other charges. | No additional charges apart from interest. |
Overall Cost | Lower cost for longer/larger loans if credit score is good | Higher cost due to flat interest and shorter tenure |
Credit Score Impact | Positive if EMIs are paid on time; defaulting affects score | High credit utilization can negatively impact score; late payments harm it more severely |
Flexibility | Less flexible; ideal for one-time large expenses. | More flexible but can lead to debt build-up if not managed. |
Best Suited For | For planned high-value requirements like home renovation, education, etc. | For short-term requirements including urgent cash needs or emergencies. |
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1. Debt Consolidation: Consolidating multiple high-interest debts into one loan with a lower interest rate.
2. Planned Large Purchases: Financing weddings, medical bills, or home improvement projects.
3. Emergency Needs: Addressing one-time urgent expenses that exceed your savings.
1. Small, Ongoing Expenses: Handling everyday purchases like groceries or utilities.
2. Short-Term Financing: Paying for items you can repay within the grace period to avoid interest.
3. Building Credit: Regular use and timely payments can improve your credit score.
• Predictable monthly payments
• Lower interest rates
• Larger borrowing limits
• Limited flexibility
• Requires good credit for low rates
• Possible origination fees
• Credit Card
• Ongoing access to funds
• Rewards programs and perks
• No interest if paid within the grace period
• Higher interest rates
• Risk of overspending
• Minimum payments can lead to long-term debt
The choice between a personal loan vs credit card depends on your financial needs:
• Choose a personal loan for large, planned expenses or debt consolidation.
• Opt for a credit card for everyday purchases or short-term borrowing.
By understanding your goals and repayment capacity, you can make the best decision and maintain your financial health.
Personal Loans from Ayaan Finserve India are designed to satisfy the demands of today’s professional who are in search of a quick, safe and no-nonsense borrowing. With no collateral, immediate disbursal within minutes and little to no paperwork, AFI guarantees you get anywhere from ₹5,000 to ₹50,000 – whether you are handling bills, or organising purchases, AFI stands with you
At AFI, we believe in picking a lending partner who supports your objectives and keeping things straight – no fluff. If you're wondering is a personal loan better than credit card debt for your goals, AFI's personal loans offer you the clarity and structure to make that decision easy. What are you waiting for? Apply for an AFI Instant Personal Loan to borrow money without worrying.
A: A personal loan provides a lump sum with fixed repayments, while a credit card offers a revolving credit line for ongoing expenses.
A: Personal loans typically have lower interest rates compared to credit cards, especially for borrowers with good credit.
A: Use a personal loan for large, planned expenses like home renovations, medical bills, or debt consolidation.
A: A personal loan is one that gives you a predetermined amount of money that should be repaid over a set length of time in monthly installments - with interest. You can borrow up to your credit limit, repay it, and borrow again using credit card loan, which is the same as a revolving line of credit. This outlines the fundamental difference between personal loan and credit card loan.
A: It is true that a hard inquiry may lead your credit score to drop a few points after obtaining a personal loan, a personal loan itself isn't usually harmful to your credit score. In fact, if you use this loan to consolidate credit card debt and make on-time payments, it might as well be beneficial for your credit.