Personal loan vs credit cards – Advantages and disadvantages
There are many credit options in the market today that have enabled people from all walks of life to fulfill their goals. Car loans, home loans, and business loans may have specific utility and eligibility criteria, but a personal loan is one of the most dynamic forms of credit as it can be used for multiple needs. Moreover, with high sanction values and comparatively low personal loan interest rates, they are gaining more popularity by the day.
However, lending options are not limited to loans alone. You can also use a credit card to cover your expenses. Similar to personal loans, they can also be used for various needs. But how do they differ? Let’s find out.
| Points of difference | Personal loan | Credit Cards |
| Application process | Personal loans are offered by banks and non-banking finance companies (NBFCs). You have to fill the loan form and submit documents like your bank statements, identity proof, income proof, etc. | Creditcards are primarily offered by banks. NBFCs have to take permission from the Reserve Bank of India to undertake credit card operations. You can get a credit card by simply putting in a request with the concerned authority along with documents like identity proof, income proof, etc. |
| Collateral | Personal loans can be secured or unsecured, depending on the lender and loan amount. | Credit cards are issued without any collateral. |
| Loan amount and tenure | A personal loan may offer a higher credit amount. In fact, you can take a loan of up to Rs. 25 lakh with a tenure of even 5-6 years. | Credit cards usually do not offer such high credit limits, and the repayment tenure can be between 3 months to a maximum of 2 years. |
| Uses | Personal loans are ideal for both big and small purchases requiring lump sum capital, such as home repairs, travel, marriage, medical expenses, purchase of assets and possessions like a vehicle, electronics, furniture, etc. | Credit cards are useful for smaller purchases like groceries, electronics, travel, food, movies, etc. They can also be used for some big-ticket expenses such as a car or motorcycle, depending on the total amount and the vendor. |
| Disbursement | A personal loan is disbursed in a lump sum. You can use the personal loan EMI calculator to assess your loan requirements and apply for a loan accordingly. The lender will approve your loan request and disburse the entire amount in one go. You then use this money as you wish. There is no interference from the lender as long as you repay your loan within the stipulated time. | Credit cards are issued with a monthly limit up to which you can spend. The money is not disbursed into your account but appears as an approved credit limit. You can use it as and when you need it but have to repay within the repayment tenure offered by the credit card provider. The lender will keep a statement of all your expenses and issue it to you each month so you can track your spending. |
To sum it up
If you are looking for more autonomy and a higher credit amount, a personal loan can offer you better flexibility. Moreover, you can also get personal loans with no collateral, so you can fulfill all your goals with ease.
