Whenever there is a cash crunch or an urgent need of funds, anybody would think of availing a loan or just swiping his or her credit card. A Personal Loan and a Credit Card are two tools which have a different set of utility aspects. Here we take you through the pros and cons of both and let you decide which to choose when you need money in a situation.
Personal loans are unsecured loans which can be availed for any purpose. You do not need to keep any collaterals or security for the loan. These loans are usually taken when you need to do a big ticket purchase or you want to repay the loan over a certain period of time.
You can avail a personal loan from a Bank or any NBFC. You can also apply for a personal loan online and get approval for it on the spot. The process is speedy and requires minimal documentation.
Advantages of A Personal Loan
1. Low Cost for Good Credit Score Holders
If there are no collaterals involved, then the Banks or NBFCs look at your credit score to decide your eligibility. A Credit Score which is 750 and above is considered a good credit score and has higher chances of your loan approval. A good credit score can let you avail a loan at a low interest rate.
2. Consolidate Debt
You can consolidate all your debts into one using a personal loan. You can pay them off as the interest rate for a personal loan is low.
3. High Amount
If you need a loan for a high amount which exceeds your credit limit then you can avail a personal loan for it.
The process to avail a personal loan is quick and easy. Banks and NBFCs now give approval and disbursal on the spot too.
5. Easy Re-Payment Through EMIs
As compared to credit cards where you have to pay the whole amount at one go at the end of the month, with EMIS, your loan amount gets divided each month. You can calculate these EMIs beforehand using the Personal loan EMI Calculator and get an idea of the amount you will have to pay each month.
Disadvantages of A Personal Loan
1. No Revolving Credit
Once you repay an existing personal loan and if you need another one then you have to go through the whole application process once again.
2. High Cost for Poor Credit Score Holders
If you have a poor credit score, then the Banks and NBFCs charge you a high rate of interest. This means that it is a costly deal for you.
A Credit card allows you to borrow money while you are availing a service or purchasing something. These cards are issued by banks or credit companies. You get the needed money at the time you want to spend it. At the end of each month, you have to repay the amount of credit you used.
Advantages of a Credit Card
1. Easy Availability
The main eligibility criteria for a credit card is your monthly income based on which you get a credit limit. So even if you do not have a credit score of 750 and above, you can apply for a credit card.
2. Affordable Introductory Rates
You may receive low introductory rates for up to a year on the purchases and balance transfers.
3. Points and Rewards
Making purchases through credit cards can get you some cash backs, points or other rewards which you can use for the next purchase.
4. Revolving Credit System
Once you receive a credit card you can use it as many times you want.
Disadvantages of a Credit Card
1. Small credit limits
If you have an average credit score then you can get a credit card, but you will receive really low credit limits.
2. High and Extra Costs
Compared to personal loans, credit cards may have a higher rate of interest, annual fees, balance transfer fees, cash advance fees etc.
3. Minimum Monthly Payments
Your minimum monthly payments will be higher if you have debts on multiple credit cards.
A Personal Loan is an option you should choose if you need a hassle-free and quick loan availing experience. Timely payments for a personal loan can also improve your credit score.