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Credit Card VS. Personal Loan: Everything You Need to Know
- Published on: 4 Dec 2023
Going for a credit card vs a personal loan is a decision you should make only after understanding what they are and their differences. Doing so will help you pick the best one and ensure that your finances aren’t burdened in any way.
While you can choose from numerous options, revolving credit and loans are among the most popular ways to access funds. A primary reason for this is that both offer quick financing that you can use to fulfil requirements without restrictions.
Read on to learn what they are, the difference between loans and credit cards and the pros and cons of each.
When you get a loan, you usually receive a lump sum amount for a fixed tenure. The lender charges interest for this facility and you repay the principal amount as well as the interest in multiple instalments at regular intervals throughout the tenure.
A personal loan is a loan that doesn’t require you to pledge as collateral, such as a house or car, to get financing. It also doesn’t place any restrictions on how you use the funds. This is why it is a popular choice for borrowers looking to get quick access to funds.
A credit card is a type of revolving credit when you get credit up to a certain limit as decided by the credit card company based on your finances and creditworthiness. You can use your card to make purchases up to that limit and repay at the end of the billing cycle, which is usually a month.
If you pay your credit card bill in full, no interest is charged. If you don’t, interest applies to the outstanding balance. When you repay your full or a part of your balance, your credit is restored up to that amount and you can continue to use your credit card.
Take a look at the table below to understand the difference between a credit card that offers revolving credit and a loan that offers you a lump sum.
| Parameter | Personal Loan | Credit Card |
|---|---|---|
| Type of Financing | Financial institutions disburse the loan amount in a lump sum as a one-time sanction | Involves revolving credit where you can use funds up to the credit limit; on repayment, the limit is restored |
| Tenure | Can go up to 6 years | Your billing cycle ranges from 27 to 31 days in most cases and you get up to 25 days to clear the credit card bill |
| Schedule of Repayment | Fixed monthly payments in the form of EMIs | Revolving monthly repayment that is based on usage up to the credit limit |
| Interest Rate | Fixed or floating interest rates that are usually lower than credit card interest rates | Higher interest rates as compared to personal loans, which only apply to unpaid balances, if any |
| Fees and charges | Processing charges, EMI bounce charges and penal interest may apply | Annual fees, joining fees and late fees may apply |
| Purpose | No restriction on usage, so you can meet emergency expenses, home renovation costs, education fees, travel expenditures and more | Can be used for daily needs, shopping, education-related expenses, entertainment, fuel, and more |
When it comes to choosing between these options, it helps to understand the purpose behind why you need funds. A personal loan may give you a higher sum as compared to a credit card, but it may involve more documentation.
Both can help you build your credit score on responsible repayment. To help you choose the ideal option, here are some top uses for both credit options:
Based on the above uses, one way to decide which option to choose is to look at the type of expense. If it is a small expense, you can use a credit card. However, if it is a bigger expense, like paying a down payment or consolidating debt, you should opt for a personal loan.
All in all, you can choose between revolving credit and a loan depending on your financial requirements. With Fibe, you can apply for an Instant Cash Loan of up to ₹5 lakhs at an affordable interest rate. You can get the funds without lengthy paperwork and repay it comfortably with flexible tenures.
However, if you want a credit card instead, you can opt for a Fibe Axis Bank Credit Card. This numberless credit card gives you additional security with up to 3% cashback on every transaction. You also need not pay any joining or annual fee as it is a lifetime-free card. Download the Fibe Personal App or register on our website to get started.
Yes, a loan is a type of credit where the lender provides you with a fixed amount for a specific tenure. You must repay the same with interest in monthly instalments spread across the tenure.
When deciding on a credit card vs personal loan, keep your usage in mind. If you need a substantial lump sum to meet big-ticket expenses, a personal loan may be more suitable. A credit card may work better for ongoing and smaller expenses for your everyday needs.
Yes, cash credit is a short-term loan with a repayment tenure of up to 12 months. It allows you to maintain cash flow, whether it is for professional or personal purposes.
Term loans have a longer loan tenure as compared to cash credit or CC. In addition, a term loan gives you substantial funds to cover major expenses like purchasing equipment, buying property, education costs, etc. In contrast, cash credit gives you the funds to maintain day-to-day operations.
A line of credit is a type of facility where you get access to funds up to a certain limit. You have the freedom to withdraw funds as and when you need them up to this limit and repay when you can. You can borrow multiple times from this limit and the interest applies only to the amount you have utilised.
On the other hand, a loan gives you access to funds at one time, right into your bank account. You can use it for any expense and repay in EMIs. Here, the interest applies to the total principal.
