When it comes to short term funding, the first thought that would naturally cross someone’s mind is to go for a personal loan. Whether the requirement is to do up the house, to bridge the gap in funds to buy a large ticket product, to fund a marriage or to use money for that emergency that has suddenly cropped up, personal loans appear to be the only choice.
Well that above may not be completely correct. There is another product that can help you in meeting that short term and lower quantum of money requirement. And this product that you carry in your pocket at all times is credit card.
Before siting an example that would provide with clarity on this, let us go through the factors that need to be taken into consideration to evaluate and weigh the option of using the credit card or go for that personal loan.
The personal loan will take its own course to get processed and it could be a few days before the money actually gets credit into your account and is available for use. While on the other hand the credit card is available for instant gratification. You can just swipe the card and complete that transaction within moments. All that you need to do is to call the customer care and ask them to convert the transaction into a loan on card. Meaning the loan is just a call away.
Quantum of loan required
This is another factor that would come into consideration if the while comparing the two products. The credit card limit is while usually higher than the actual monthly earning (and many a times in multiples), the same may still not suffice the requirement.
Pay back plan
It is only prudent to pay back that high interest loan, whether on card or a personal loan. So the time that you think you would need to pay back the amount will also be impacting in choosing between the two products.
Comparing interest rates
Once you have decided on the term that you would need before you can repay, the calculation has to be done on the interest outflow that you would have on the amount being borrowed. While the personal loan interest rate may seem to be lower, but factoring the term and the way you wish to repay a card may turn out to be the better deal.
Most of the loans will have a processing fee in the range of 1% to 5%. So on this front both may be at par.
Every personal loan if required to be closed prematurely will attract a charge of about 2% to 3% on the unpaid amount. Whilst that is not the case with a loan on credit card.
Sunny Varghese is a financially canny person who keeps a close weighs all financial transactions minutely before concluding. He was in need of funds to do some makeover of the house. While he was planning to apply for that personal loan, he compared the credit card loan as well and finally decided to go with the latter. Following were the factors that he considered to come to a conclusion:
All the above factors made him to realize that if he took that personal loan he would be stuck with the EMIs for a longer period which he did not want to.
Another factor that impacted his decision was the advice that he received from his banker friend when he had obtained his free CIBIL report. As per his friend every time an unsecured loan gets added to the credit report, the credit score gets impacted, though for a short term.
Your email address will not be published. Required fields are marked *
Nice Article. There is always pros and cons of every aspect. Indian Cu ...
Thanks for finally writing about >Why Indian women fall short on cr ...
Thank you for sharing your infօ. I reɑlly appreciate yⲟur efforts and ...
Daily Tips to stay Credit Healthy
© All Rights Reserved at Credit Sudhaar