When you need quick money, two common options are personal loans and credit card loans (also known as credit card EMIs or cash advances). But which one is cheaper overall? Let’s break it down across all key factors: interest rate, fees, repayment flexibility, and more.
🔍 1.
Definition: What’s the Difference?
Personal Loan:
- A lump sum loan given by a bank/NBFC for personal use—no collateral required.
- Fixed EMI over a tenure (6 months to 5 years).
Credit Card Loan:
- Option 1: Convert your outstanding dues into EMIs.
- Option 2: Take a cash advance from your credit limit (very expensive).
- Option 3: Use “loan against credit card”—a pre-approved loan from the issuer based on your spending pattern.
2.
Interest Rates: Who Charges Less?
|
Criteria
|
Personal Loan
|
Credit Card EMI
|
Credit Card Cash Advance
|
|
Interest Rate
|
10% -18% p.a.
|
13% -24% p.a.
|
24% - 48% p.a. (or 2-4% per month)
|
|
Fixed/Reducing
|
Reducing Balance
|
Usually Reducing
|
Flat Monthly Rate
|
🔸 Verdict: Personal loans are cheaper than credit card EMIs, and much cheaper than cash advances.
3.
Processing Fees & Charges
|
Charges
|
Personal Loan
|
Credit Card EMI
|
Cash Advance
|
|
Processing Fee
|
1% -3% of loan amount
|
0 -2%
|
₹250- ₹500per transaction
|
|
Prepayment Penalty
|
2% -5%
|
May or may not allow
|
Not applicable (usually)
|
|
Hidden Charges
|
Low
|
Moderate
|
High (plus GST on interest)
|
🔸 Verdict: Personal loans are transparent. Credit card loans may come with surprise.
🕒 4.
Repayment Flexibility
|
Factor
|
Personal Loan
|
Credit Card Loan
|
|
Tenure Options
|
6 months -5 years
|
3 months - 2 years
|
|
EMI Customization
|
Yes
|
Limited
|
|
Pre-closure
|
Allowed after 6 months
|
Often not allowed or has penalties
|
🔸 Verdict: Personal loans offer more flexible repayment options.
5.
Loan Amount Eligibility
|
Factor
|
Personal Loan
|
Credit Card Loan
|
|
Loan Limit
|
Up to ₹40 lakh (based on income)
|
Based on card limit (usually < ₹5lakh)
|
|
Collateral
|
Not required
|
Not required
|
|
Approval Time
|
1 -2 days
|
Instant for pre-approved
|
Verdict: Personal loans provide larger amounts, but credit card loans are faster if pre-approved.
6.
Impact on Credit Score
- Both loans affect your credit score.
- Missing EMIs on credit cards has a bigger negative impact due to revolving credit structure.
- Personal loan EMIs are predictable and easier to manage for credit health.
Verdict: Personal loans are safer for long-term credit health if repaid on time.
Example Comparison
|
Situation
|
Personal Loan
|
Credit Card EMI
|
|
Loan Amount
|
₹1,00,000
|
₹1,00,000
|
|
Interest
|
12% p.a.
|
18% p.a.
|
|
Tenure
|
12 months
|
12 months
|
|
EMI
|
₹8,885 approx
|
168 approx
|
|
Total Paid
|
₹1,06,620
|
₹1,10,016
|
Total Savings with Personal Loan: ₹3,396
When to Choose What?
|
Choose This
|
If You…
|
|
Personal Loan
|
Need a larger amount, want lower interest, plan to repay over a longer period
|
|
Credit Card EMI
|
Want fast access, have a small expense, or your personal loan is denied
|
|
Credit Card Cash Advance
|
Use only in emergency-last resort due to high cost
|
Final Verdict:
What’s Cheaper?
- ✅ Personal Loan is generally cheaper and more structured.
- ⚠️ Credit Card Loan is more expensive, especially cash advances.
- Always compare APR (Annual Percentage Rate), not just EMI or interest rate, and read the fine print.
Source of image:Google
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