Even if you have secured yourself and your family using the best financial planning tools, you never know when a contingency might force you to raise additional funds. The ideal options in such cases remain using your credit card or applying for a loan. You'll have two choices - a credit card loan or a personal loan. Given the benefits of both, it could be challenging to make a choice. The simplest solution is to weigh the pros, cons, and outline the unique features of each to draw a comparison.
This article covers all the hows, whys, and whats of credit card and personal loans. Read on to understand them in detail.
Credit Card Loans – Overview
It is a loan that allows you to borrow money when using a credit card. The loan issued by a bank (issuer) on the credit card used by an individual is termed a credit card loan. The borrower needs to repay the loan amount within a stipulated period (termed as the grace period in official language). The borrower is obligated to return the money (borrowed amount including the interest) within that period. Credit cards are counted among the most popular loan instruments around the globe. Individuals have been using credit card loans to manage their daily expenses and to purchase assets.
Like a personal loan, credit card loans too can be secured or unsecured. Banks provide the former to customers capable of offering security against the loan extended, while the latter is provided based on an individual's creditworthiness.
Personal Loans – Overview
Personal loans are popular among people. They usually borrow money to buy a car, purchase a house, or fund a start-up. Often, loans become necessary because most people don't have enough financial resources to meet their needs. Nowadays, financial institutions give loans for every requirement. If a person needs funds to buy an expensive asset such as a car, house, he/she may apply for a personal loan.
A personal loan helps people make expensive purchases. The repayment is staggered, which makes the loan affordable. Also, this allows people to pay off the loan gradually. If you have chosen a good deal, you can quickly pay off the loan in the specified time.
When Can An Individual Benefit From Credit Card Loans?
There isn't any collateral or property to guarantee or secure the loan in the case of credit card loans. No asset is pledged as collateral specifically, making loans less risky for the borrower as the consequences aren't so immediate even if he/she fails to repay.
On the other hand, lenders are ready to take more risk when it comes to unsecured personal loans. Though they don't have any assets to sell if the loan isn't repaid on schedule, they have other options to recover the loan amount. Example- They may take legal action or may collect the same from your wages. And as the lenders are at a higher risk, generally, they charge a high rate of interest on these loans compared to secured loans.
An individual's credit is one of the core factors determining whether or not he/she will get an unsecured loan. If a person has a suitable credit score, he/she may get a loan at a lower rate of interest with the option to choose from a variety of loan types. But if a person has an unfavourable credit score, he/she can't be very picky and may need the approval of a cosigner for the loan. In case of an unfavourable credit score, getting a loan through a credit card is challenging but not impossible. In such cases, the person has fewer choices and needs to pay a higher interest.
When Can Individuals Finance Their Needs Through Personal Loans?
Taking loans is the fastest way to handle financial crises and meet emergency needs. It allows individuals to borrow large amounts quickly, which otherwise could not be possible. Personal loans are quite suitable for expensive purchases that call for immediate/urgent payment. Additionally, they allow you to quickly spread the purchase cost, helping individuals manage short-term finance requirements efficiently.
If you are facing financial hardships, you may not even be able to bear the daily/ monthly expenses. In such critical situations, you can consider a personal loan. Borrowing cash or taking a loan allows you to meet your financial needs, which otherwise seems unaffordable. Most of us find ourselves strapped for cash at some time or the other. Also, many households struggle to build emergency funds. But personal loans let you effortlessly obtain emergency funds quickly.
With the rising need for loans, there are several lenders in the market today offering financial help at lower interest rates as an incentive to attract borrowers. The increasing number of lenders in the market elevates the competition level, which further creates room for cheaper interest rates. Moreover, few specialist lenders also provide loans tailored to the borrower's unique needs.
There are loans for every purpose, each named based on the purpose they are provided viz; secured loans, unsecured loans, business loans, personal loans, car loan/finance, home improvement loans, and many others. Personal loans are quite popular, as they enable an individual to easily afford "big-ticket" items such as washing machines, sofas, etc.
You may find several lenders in the market, but you must approach the one who offers the loan at the cheapest interest rates. Accessing e-lenders for your financial needs could also be a good idea, as these online firms provide loans at competitive interest rates.
One of the most significant advantages of personal loans is that they are relatively easy to acquire. The terms and conditions for taking a loan are flexible.
Loans nowadays are designed for short periods with fewer qualifying terms and conditions, allowing people to take loans quickly. Today, an individual can access loans within a day. And a few lenders/companies can raise funds within a couple of hours only.
Many financial institutions provide personal loans for short periods like two weeks; they may also be borrowed for shorter or longer durations, as per the borrower's needs. The loans can also be accessed quickly – without meeting any strict requirements. It makes loans an ideal option for people who need money urgently. It's also suitable for those borrowers who cannot prove their eligibility under any other forms of credit.
Generally, borrowers need to provide identification, a steady income, and a bank account to acquire a personal loan.
Credit card loans and personal loans allow people to cope with expenses that could otherwise be impossible to manage. Therefore, taking loans is a useful form of credit for individuals with no savings or no other credit access. Moreover, loans may help individuals pay bills or cover some other necessary expenses.
Without loans, an individual may fail to afford the essentials. The borrower might miss paying off urgent dues resulting in penalties or losses or disconnection of utilities. Furthermore, loans can help an individual avoid incurring bank charges if a check bounces.
Personal loans are also an ideal option for people who fail to accumulate savings to cover unexpected expenses like medical or repair bills.
Credit card loans allow you to finance your needs and borrow money for almost any purpose. With the borrowed funds, you can easily consolidate debt, buy any expensive asset, or meet any urgent financial needs.
Credit card loans and personal loans come with certain benefits and limitations; make sure you pick the right option as per your financial needs.