How to choose between a personal loan and a credit card loan?

Among the different options available to a small borrower in a credit market, the most common are personal loan and credit card loan. Both financial lending tools are devised to meet out an individual’s urgent need of money from many a number of reasons including medical bills, travel, education fees and others.        

However, before opting between personal loan vs. a credit card loan, it is imperative for a borrower to understand difference between them. On the basis of evaluation, he can choose anyone of the both according to his personal needs and preference.

An Overview of Personal Loan and Credit Card Loan

  Personal Loan     Credit Card Loan
  Personal loan is generally offered as an unsecured loan for different financial needs including medical expenses, travel or settling payment of a debt. The rate of interest on a personal loan varies from lenders to lenders. An applicant of personal loan is required to go through a documentation process.  SBI personal loan is one of the best options for a borrower to avail credit on personal loan interest rate varying from 11.50% to 13.00% according to his profile.     A credit card loan is much easier to avail and is pre-approved without any documentation. It is credited to a borrower against the credit limit enjoyed by him on his card. Utilizing a portion of unutilized credit limit of a credit card, it is offered to a person seeking a loan. However, it is different from cash withdrawal on a credit card.

Distinction between Personal Loan and Credit Card Loan

It is evident that credit card loans as well as personal loan are the most easily available line of credit to a loan seeker based upon his credit score and other factors. However, there are certain parameters that differentiate both of them from each other. The differences as follow:-

  • Documentation: Approval of a personal loan by a lender or a bank requires submission of certain documents like proof of identity, proof of address and proof of income, when applying for it. In case of loan on credit card already being pre-approved, doesn’t require any such document and paper work.  
  • Period for loan to be approved: Due to the submission of documents, verification and KYC, a personal loan application approval period tends to a bit longer in comparison to loan availed through a credit card.  
  • Type of loan: Personal loans are unsecured loans approved to a borrower without any requirement for mortgage or security. He is not required to surrender any guarantee with the bank to in order to obtain a loan.  Similarly, loans on a credit card are also unsecured credit offered; however, are pre-approved on the basis of one’s credit score and the usage of the card.      
  • Rate of Interest: The rate of interest on personal loan varies from lender to lender and type of personal loan product applied by a borrower.  However, a uniform personal loan interest rate applicable in credit market prevails from 10.99% to per annum to 17% per annum. The interest rates on SBI personal loans are very competitive according to the loan product offered by the bank. Whereas, the rate of interest on credit card loans in most of the cases is communicated to a borrower at the time of sourcing.    
  • Eligibility Criteria: Any person, whether, he is customer of a bank or not, can apply for a personal loan. But, in case of credit card loans, it is necessary for an applicant to be credit card holder of the respective bank, he is seekingloan from. In case of pre-approval of credit card loan, a beneficiary is intimidated by a bank through SMS or email. Though, an applicant’s credit or CIBIL score should be within the loan approval range.        
  • Loan Duration: Personal loans generally get approved for a longer tenure. Whereas, the duration for the credit card loans occurs to be, comparatively, short. As a credit card loan doesn’t have a pre-payment feature thus results into higher interest payment loan instrument.       
  • Amount of a Loan: In case of personal loan, a borrower, who, is applying for a loan can quote a loan amount according to his personal requirement. However, the final decision to approve that loan amount bank keeps with itself. Contrary, in the loan on a credit card, banks decide a pre-approved loan amount according to the available credit limit and credit history of a card holder.   

Credit Card Loan Vs. Personal Loan in a Glance

  Personal Loan Loan on Credit Card
Type of Loan Unsecured Unsecured
Selection Criteria Anyone including existing bank customers can apply Pre-approved only to bank or lender’s credit card holders 
Loan Amount To be quote by a borrower according to its requirement Pre-approved by the bank on the basis of remaining credit card limit and payment history  
Documentation Id proof, address proof and income proof Doesn’t require any document
Approval Period Take four to five days  Within 24 hours

On the basis of above discussed parameter, a borrower can choose between personal loan and loan on credit card. In case, he is opting for a SBI personal loan than he can avail various loan options based upon his profile and credit score.

SBI Personal Loans- Products Overview

PRODUCT TYPE ELIGIBILITY LOAN AMOUNT EFFECTIVE  INTEREST RATE (w.e.f. 10.12.2019)  
  SBI Pension Loan  Central and State government pensioners, defense pensioners and family pensioner        Up to 14 lakh   11.50% – 12.00%
SBI Express Credit Salaried Individuals with salary account in SBI   Up to 20 lakh   11.50% – 13.50%
SBI Express Power Salaried Individuals without a salary account in SBI   Up to 20 lakh   11.60% – 13.25%
Pre-Approved Personal Loan Pre-selected customers having salary or pension account with SBI   Up to 20 lakh   11.60% – 13.25%

In order to have a personal loan from the State Bank of India you can visit bank’s official website and can apply there. 

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