Credit cards are easy to use, just swipe and get the things done. Each purchase brings more points that can be redeemed as cashback of other exciting offers. But if you are not using them responsibly or misusing it, you can get trapped in the debt easily. Not only credit cards are the expensive forms of loan, but they can also dent your credit score if you don’t learn to handle them carefully. However, many people think credit cards are the sole medium to get quick access to money. But they are wrong because personal loans are also a good medium to cater to your immediate fund requirements and available on the lower rate of interest as compared to credit cards. If you are planning to take a credit card or a personal loan and finding it difficult to make the choice between the two, then you should know about the reason that why most of the people love personal loan over the credit card.
So, take a look at the reasons people love personal loans instead of a credit card.
Table of Contents
1. Provide you instant cash
People prefer personal loans over a credit card in the situation when they need to make a purchase that could use half or even more credit available on the credit card and you can’t plan to pay off the balance right away. By burdening your credit card, you may hurt your credit score negatively. Spending on expensive items such as computers, furniture, and jewellery can cost you more money than you might have on your hand. And when you pay for expensive items through your credit cards, you find yourself in a difficult situation because you can’t plan the repayment as per your convenience. On the other hand, if you use a personal loan to meet such expenses or even bigger expenses like medical bills, wedding expenses or home renovation expenses, a personal loan provides you liquid cash to meet the needed expenditure with a flexible repayment tenure.
2. When you want a lower interest rate
Personal loans are specifically designed to settle over the long term, so their interest rates are fairly on the lower side, which favours the borrower in the long term. In India, the APR (annual premium rate) of leading credit card providers could go up to 40%. While the Personal loan interest rate is lower and easy to afford. For instance, Central Bank of India personal loan ranges between 10.75% and 12.50%, which is way more convenient to repay as compared to a credit card. Thus, credit cards make little sense if you want a loan on a lower rate of interest.
3. When you can’t pay the balance quickly
Suppose you buy furniture by using a credit card and at the time of repayment, you realize that you will have to pay the entire amount at once otherwise you will be charged with a heavy rate of the interest rate. Paying a big amount within a specific period of making the repayment difficult, that’s why people prefer personal loans. Since you make a purchase through a personal loan, you make the repayments in easy instalments, that too in your selected tenure.
4. No need to worry about the impact on your credit score
When a lender receives your personal loan application, for most of the few important things, it sees your credit utilization ratio. The lender calculates your credit utilization ratio by seeing the history of your credit card usage. If the lender finds that the borrower is using a credit limit of more than 30% available on the credit card, it may reject your loan application. The more credit utilization ratio is seen as a credit hungriness of a borrower and makes you riskier applicant in front of the lender. On the other hand, taking a personal loan will also impact your credit score a little, but that will be temporary. As soon as you make regular payments, the credit score will come back to its previous position. However, enjoying more debt on your credit card, especially reaching 30% or more of your total available limit, keeps your score down until you pay it off.
5. Provide you a structured payment schedule
One of the greatest differences between a credit card and a personal loan is the way they are disbursed and paid back. Credit card repayment is based on the current taken amount, which may increase or decrease based upon the spending and interest accumulated for the unpaid balance. To keep a credit card, banks ask you to pay a minimum payment each month to cover interest charges. By making a minimum payment each month you can keep a credit card as long as you want, though the longer you take, the more interest you pay.
On the other hand, personal loans provide you with liquid cash to address your requirements and come with a pre-defined repayment plan. By taking a personal loan, you ensure that you will have to pay a specific amount each month to pay off the complete debt. Before taking a personal loan, you know how much you will pay as interest and how much you will pay as the principal.
When we compare personal loans with credit cards, we find that personal loans offer a lot more benefits like fixed interest rate, flexible tenure, and low-interest rate. However, credit cards can be used for any daily requirement from big to small. The only drawback is that they come up with a higher rate of interest and for repayment, there is no availability of the flexible tenure. So, if you are looking to fund urgent needs, you must go with personal loans as they offer more convenience to the borrower.