In the present-day scenario, we are all living in a world full of financial uncertainties. You may never know when any financial crisis might hit you and believe us it will hit you when you are least prepared for it. In such a situation, you need help from others to bail you out. You can always ask your friends or family for a loan, but it might happen that they also are facing similar crisis and are unable to help you out. In such a case, your best option is to seek help from a financial institution.
There are two financial products that can help you out during the immediate financial crisis:
- Personal Loan
- Credit Card
Both of these are unsecured loans and do not require any collateral. So which one is most suitable for your requirements? This is a question that confuses many potential borrowers. Following is a guide that will help you decide.
How Does a Personal Loan Work?
A Personal Loan is a form of an unsecured loan that is offered by most of the banks and NBFCs (non-banking financial companies) in India. It is a collateral-free loan and you are free to use the money for any purpose you want such as education, holiday, home renovation, and so forth. Personal Loans are extended for a fixed duration and must be repaid in monthly EMIs (Equated Monthly Instalments). Terms and conditions for these loans vary from lender to lender. Many lenders now offer the facility of Online Personal Loan Application, where you can conveniently apply for a Personal Loan on their website and get instant approvals and speedy disbursals.
How Does a Credit Card Work?
Credit Card is a financial product similar to an unsecured loan that can be offered by banks and NBFCs. It is also a collateral-free source of finance and you are free to use it for any purpose both online as well as offline. Credit Cards work on the principle of revolving credit where you have a specified limit under which you can spend. The amount available every month to you depends on the money spent and repaid. There is no fixed EMI structure for repayment and you can pay as and when you like, but you must make a minimum payment every month before the due date. Most banks offer you the facility to Apply for a Credit Card Online through their website.
Personal Loan Vs. Credit Card
From the above information, you might have realised that both Personal Loan and Credit Card are very similar and have a similar use. But their suitability for funding your requirements depends on various factors such as:
- Urgency: If your requirement for funding is urgent then Credit Cards offer you the easiest access to credit, as you already have a Credit Card and can use it according to your liking whereas with Personal Loan you must complete the application process, submit the necessary documents and it may take around 3-4 days for your application to be approved.
- Requirement Amount: If your requirement is for a big amount which runs into several Lakhs of rupees then Personal Loans are better suited for you, as most banks that offer the facility of online Personal Loan application offer amounts up to 50 Lakhs, based on your eligibility. Whereas Credit Cards are useful only when your requirement is of a few thousand rupees which you need only for a short duration.
- Repayment capacity: If your financial situation is not good and you need money to bail you out, then the Personal Loan will suit you better as you need to pay it only through monthly EMIs and some lenders will offer you the facility of EMI holiday as well. Moreover, Personal Loans have a lower rate of interest, usually ranging between 11-19% whereas with Credit Cards you need to make regular monthly payments and try to repay the amount in full as soon as possible. Otherwise the interest @ 42% p.a. would be too much of a burden.
- Duration of Loan: If you require the loan for only a temporary situation and would be able to repay it after a fixed duration then Credit Card would serve you well. But if you feel that you need some time to be able to pay off your loan, then using Personal Loan would be beneficial, as you need to pay it in easy EMIs depending on Personal Loan types.
- Type of Requirement: If you need cash urgently to meet some of your liabilities then you must use Personal Loan only because using Credit Cards to fund cash requirements will cost you a lot in the form of cash advance charges and additional interest. It will also affect your credit score significantly.
Hence it could be analysed that both Personal Loan and Credit Card offer an excellent source of funding in case of financial exigencies, but their suitability depends mainly on your requirements. So, think wisely before choosing either.
To apply online for Credit Cards, Secured Loans and Unsecured Loans, visit www.mymoneymantra.com, the leading online lending marketplace that offers financial products from 60+ Banks and NBFCs. We have served 2 million+ happy customers since 1989.
Talk to our Loan Specialists toll-free at 1800 103 4004 to know more about our products and offers.