Are You Wondering Whether To Opt For A Personal Loan Or A Credit Card?

To meet certain financial needs, especially in terms of emergency requirement of money, an individual can apply for a personal loan. These are usually unsecured loans that are sanctioned by banks, credit unions, FinTech companies and even money lenders. In present times, these loans can also be acquired by an online personal loan app that most financial organizations have.

Often the comparison between a personal loan comes up due to both being a source of monetary credit. Credit cards allow users to pay for goods and services on credit, which can be later paid back to the credit company. Small or big expenses can both be covered by credit cards. The similarity between both types of transactions is the accumulation of interest on the total sum of money utilised.

Benefits of a personal loan

1. Low-interest rates: Personal loans incur lower interest rates than credit card payments.
2. Repayment period: The repayment period of a personal loan is usually a few years. However, most credit card bills need to be paid within 45 days.
3. Personal loans are beneficial in terms of bulk expenses like home renovation loan, education loan, loan to cover wedding expenses, etc. Credit cards are more likely to be able to cover the individual costs of items or services.
4. Personal loans also help in consolidating funds. Instead of multiple small loans incurring separate interests, leading to a large amount of debt, one personal loan of a bulk amount can lessen interest rates, given the time available to repay the same.
5. Instant personal loan apps have made sure that applying for personal loans requires no more than a few minutes, and disbursement takes a few days.
6. Personal loans taken for home improvement are also better than home-equity loans, which possess the issue of holding the property up as security. Defaulting on a home equity loan can lead to losing the home, making a personal home renovation loan a lot safer.
7. Credit cards usually have a limit on the total amount of credit that can be incurred on the card (depending on the financial status of the individual) without clearing the bill.

Shortcomings of a personal loan

1. Although personal loans have low-interest rates, credit scores and other factors are often considered while determining the terms of a loan. A poor credit score can lead to higher interest rates, sometimes the same as a credit card loan.
2. Repayment of personal loans is made in fixed (usually monthly) instalments over a period, which restricts flexibility in EMIs and needs a constant stable influx of money. This might increase the debt risk.
3. Personal loans from certain financial companies might have certain processing fees, which lead to extra expenses at the beginning stages of the loan process. These costs are absent in credit card processing. However, it should be added that in recent times, most personal loans opted for via any instant personal loan app does not require a processing fee.
4. Personal loans are usually sanctioned at not less than Rs 25,000.
5. Personal loans also provide no cover against recurring charges. Once a loan amount is sanctioned, it cannot usually be altered. For example, suppose there are repairs required for machinery, once a certain amount is spent on it. In that case, there is no guarantee that no further expenses will be required. Because whatever amount of money was sanctioned for the repairs in the applied loan will not be changed to further include the extra repairing costs. In such an instance, a credit card is more beneficial than a personal loan.

The comparative study above tells us that both personal loans and credit cards have their pros and cons. It is up to the individual to find which credit options suit them the best.

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