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In times of financial emergency, loans always come to your rescue. But, with multiple lenders offering different types of loans, it can get confusing for a user to choose a particular type of loan. Personal loans and credit cards are the most used financial instruments by borrowers for their short-term financial needs. People often find it difficult to choose between them. While personal loan interest rates are charged annually, customers need to pay interest rates on a credit card on monthly basis. 

So, which of the two is better? The answer depends on a lot of factors including your eligibility for the loans, the amount you need, the EMI you can afford and so on. Before we dig deeper, let us first understand both of these loans in some detail.

Personal Loan

A personal loan can be taken for any personal need say medical emergency, wedding expenses, vacation, home renovation, studies, buying a car, etc. Being an unsecured loan, the rate of interest on personal loans is naturally on the higher side. However, if you have an excellent credit score and meet other eligibility criteria set by the bank, there are chances that you could get a reasonable rate on loan. Given below are some common benefits of a personal loan:

• You can take this loan to meet your immediate individual needs. Banks usually do not put restrictions on the end use of the personal loan proceeds, except gambling and other speculative purposes.
• The application process is easier and quicker as compared to secured loans.
• The loan amount can range from a mere Rs 1 Lakh and can go up to Rs 50 Lakh. The loan amount you will get depends on your requirement and repayment capacity.
• The repayment tenure of personal loans usually ranges from 1 to 5 years. However, some banks/NBFCs also give personal loans for a longer tenure say 10 years.
• Though the personal loan is a considered a costly borrowing, you can get a reasonable rate of interest based on solid credit history and lower debt burden on your shoulders.

Credit Card Loan

Loan on credit card is much like a personal loan in several aspects. The loan proceeds can be used to fund a financial emergency. There is no restriction on the use of money. However, not everyone is eligible for this loan. Typically, the bank monitors how you have used your credit card over the past few months. If you have made a credit card payment on time and maintained a good utilization ratio, the bank assigns a pre-approved loan amount to you. So, if you have already been pre-approved, you can easily avail the service, but if not, this service may not be of much help during emergencies. Nevertheless, let us point out a few benefits of loan on credit card:

• Just like personal loans, credit card loans are also unsecured and hence do not require any collateral security.
• No additional documentation is required which makes the application and approval process easier and much faster.
• You get to pay back the loan in easy EMIs over a time period, decided by you.
• You can apply for the loan directly through the net banking portal of your credit card provider, and within 3-4 working days, you can get the amount. Instant disbursal facility is also available with some banks.

Personal Loan vs. Credit Card Loan

Both these loans have their own advantages and drawbacks. The loan you should choose depends on your own needs and financial capacity. Here is a comparative analysis to help you make the right choice.

Personal Loan	Credit Card Loan
Eligibility is decided once you apply for the loan.	Usually, only pre-approved customers can apply.
Loan tenure may range anywhere between 1-5 years.	This loan is mostly given for a shorter tenure say up to 3 years.
No collateral is needed for the loan.	Collateral is not needed but your credit card limit may get blocked up to the amount of loan.
The loan amount depends on your repayment capacity as judged by the bank.	The loan amount usually depends on your credit card limit.
Borrowers need to submit relevant documents at the time of application.	No additional documentation is required.

Since credit card loan amount depends on your credit limit, a personal loan makes more sense when you need a larger amount to fund an emergency. It is also a great choice if you are looking for a loan to consolidate your credit card debts. In case you are looking forward to applying for a personal loan, you must first use a personal loan EMI calculator to estimate the amount that you would have to shed per month if you opt for the loan. You can enter multiple values to find the right amount, interest rate and tenure that suit your financial capacity.

On the other hand, loan on credit card can be used to fund a smaller need. If you have already been pre-approved for a particular amount of loan, there is a surety that you will get your hands on the money. Credit card loan is much quicker to avail than any other type of borrowing which makes it quite beneficial during emergencies. You can apply for a credit card loan by contacting your credit card provider.

The Bottom Line

No matter what type of loan you avail, always do your research. In case of a personal loan, shop around for a lower rate of interest; lower processing fee and better terms and conditions. Though you do not have much negotiation power in case of a credit card loan, you can still stay informed about what this loan entails. Talk to your credit card provider to understand the fees and charges and the related terms. Financial emergencies come without warning, but you should not lose your wit in such circumstances. Be a smart borrower and make a better choice.