Credit cards and personal loans are good ways to access money to meet different needs. They have many common features too. In both, you get easy and fast access to money. Both specify deadlines for returning the money. Meeting these timelines has an added benefit; it helps you improve your credit score. Here’s a look at the difference between credit cards and personal loans and what you can consider when choosing between the two.
Personal Loans
When you apply for a personal loan and receive approval, the lender provides a lumpsum amount that you need to repay over a specific period of time (called tenure). You make the payments in EMIs (equated monthly instalments). Here, the tenure, interest rate and EMI amount are fixed and communicated to you before you take the loan.
Advantages
· It can fund large expenses.
· It generally offers a lower rate of interest than a credit card.
· It provides credit in a one-time lump sum amount.
· Its payments are predictable and fixed.
Disadvantages
· It may come with service fees and other charges.
· It does not offer more credit after each repayment.
· It does not provide rewards.
For speedy loan approval, you can apply for an instant personal loan online via a reputed personal loan app.
Credit Cards
A credit card offers revolving credit, which means that every time you repay, the limit that you can borrow is reset. This means you have ongoing access to money. The card comes with a credit limit or the maximum amount that you can spend on it. That amount is not given to you in full in one go. Instead, you can use the money as and when you require it and need to pay interest only on the funds used.
Advantages
· It is an ongoing and revolving credit product.
· You pay interest only if you miss repaying the money on time.
· Also, interest is calculated only on the outstanding money or money that you have used and not the complete credit limit available to you.
· It comes with rewards and other benefits, like cash advances and balance transfers. For instance, the Kotak811 Credit Card offers cashback of ₹750 or 4 free PVR tickets on annual spends of ₹75,000
· If you repay on time, your credit limit may be increased over time.
Disadvantages
· Credit cards usually have higher interest rates than personal loans.
Differences between personal loans and credit cards
Why apply for a personal loan?
You can apply for a personal loan to finance major one-time expenses, such as:
· Property restoration
· Home renovations
· Vehicle repair
· Consolidating high-interest debt
· Medical emergency
· Wedding
· Higher studies
· Family vacation
Why apply for a credit card?
A credit card is more suitable for funding frequent small expenses that you can repay quickly. These expenses may include:
· Everyday shopping
· Regular bill payments
· Booking movie tickets, airlines and hotels
· Unexpected or emergency expenses
Both personal loans and credit cards have their pros and cons. So, choose the one that meets your specific needs.
If you need a large amount of money for a one-time expense, want the interest rate to remain fixed, and prefer the predictability of equal monthly payments, you can apply for a personal loan.
If you wish to use credit for small regular expenses, are comfortable with variable monthly repayments, want to avail discounts on branded purchases and earn redeemable rewards and cashback, a credit card is an ideal choice.
(Disclaimer: This is a syndicated feed. The article is not edited by the FPJ editorial team.)
