THE PRICE OF EASY MONEY
A loan on your credit card is deceptively easy. Use it only as a weapon of last resort
When you need money ur-gently without the bother of putting up collateral assets, you have two options—a personal loan or a loan on your credit card. Both have their pros and cons. While a personal loan will take a few days to pro-cess and you’ll need to show/ submit documents, credit card loans will come through in a matter of hours without any proof. That said, both are very different products.
A personal loan needs documents such as identity and address proof, income and bank statements of the past three months. It will take three to seven days to get sanctioned. For credit card loans, documents are not needed as usually these are pre-approved for existing card holders and are often cleared within a few hours.
Personal loans normally come with a processing fee of 1-2 per cent, which means for a loan of Rs 3 lakh, a processing fee of Rs 3,000-6,000 needs to be paid. Pre-closure charges are generally low on personal loans (ICICI Bank charges 5 per cent or nil for loans over Rs 10 lakh; HDFC Bank charges 4 per cent or nil for a loan amounting to more than Rs 10 lakh). Some banks like Axis and SBI do not penalise customers for prepayment of personal loans once they clear their first EMI. In the case of credit card loans, the processing fee is 1 per cent while 3 per cent of the out-standing principal amount is charged as foreclosure fee. The most important point while comparing credit card loans and personal loans is the interest rate charged. Personal loans usually get charged an interest rate of 11.25-21 per cent while pre-approved loans on credit cards range between 15-21 per cent per annum. Credit card dues, if not cleared in the allotted time, get charged an interest rate of 30-50 per cent per annum. Personal loan terms usu ally range from one to five years whereas, for credit card loans, it is usually less than 12 months. Some card issuers offer shorter tenures too—SBI Card’s Easy Money plan has a 45-day tenure.
Before you zero in on a loan, do a spot of research and compare loan offers of various banks. Opt for a pre-app roved credit card loan only if funds are needed urgently. If not, a personal loan is always better: it has lower interest rates, higher loan amounts and also longer loan tenures. For example, a person with a credit limit of Rs 2 lakh can avail only the same amount on a credit card, but he might get approved for a personal loan of up to Rs 4 lakh. Also, a personal loan does not block the credit line on your cards.