If you are short of funds, then it is acceptable as well as feasible to apply for a personal loan. Amid loads of options available all around, you could be spoilt for choice. Whether to opt for an ‘instant loan’ or a ‘loan against credit card’ – it is not an easy decision.
Let us try to unwrap the mystery by comparing the features of both these unsecured loans.
Typically, loans against credit cards are pre-approved, and one only needs to click to get the money transferred to your account. It is generally given against the credit card’s limit but treated like a separate loan.
On the other hand, instant loans require certain prerequisites such as a good credit score, a minimum salary, and KYC.
These are some of the factors that determine which one could be better for you.
Instant loans vs credit card loans: How to decide
I. Interest rate: One factor that matters the most is the interest rate on the loan. Generally, credit cards carry a higher rate of interest on their loans. Therefore, you should choose the relatively cheaper one. Even a small difference of 60-70 basis points can turn out to be a big difference when the loan amount is high and the tenor is long.
II. Processing fee: Additionally, at the time of applying for a loan, banks also charge a processing fee, which is deducted from the amount that is disbursed. It reduces the final amount that is transferred to the bank. So, it is natural to factor in this fee before deciding the type pf loan to opt for.
III. Disbursal speed: Another consideration that should weigh in your decision of choosing one loan over another is the speed at which the loan is disbursed. If you need urgent funds, then it is normal to go for the loan which meets your requirements immediately.
IV. Other costs: Then, another factor that matters is the quantum of associated costs (such as GST or other hidden charges) that accompany this loan. If the associated costs are higher in one loan, then it becomes more expensive in relation to the other.
V. Impact on credit score: Last but definitely not least, one should examine the impact on credit score. If the loan against your credit card exhausts your entire credit limit, then it would adversely impact your credit score. So, one could opt for the loan option, which is less harmful to your credit score.
Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. Mint does not promote or encourage taking credit as it comes with a set of risks, such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
