In this comprehensive guide, we explore the concept of obtaining a personal loan on a credit card and how it can be a valuable financial tool for meeting various needs. Credit cards are widely used for making purchases and managing short-term expenses. However, many cardholders may not be aware that their credit cards can also be utilized to avail a personal loan. This article delves into the details of how personal loans on credit cards work, their benefits, and essential considerations to keep in mind while opting for this financial option.
Understanding Personal Loans on Credit Cards
A personal loan on a credit card, also known as a credit card loan or loan on card, is a pre-approved loan amount that cardholders can access through their credit cards. This loan amount is separate from the card’s credit limit and is usually offered at competitive interest rates. Cardholders can avail themselves of this loan facility for various purposes, such as consolidating debt, funding emergencies, or making big-ticket purchases.
How Personal Loans on Credit Cards Work
The process of obtaining a personal loan on a credit card is relatively straightforward. Here’s how it typically works:
Step 1: Check for Pre-approval
Many credit card issuers pre-approve cardholders for a specific loan amount based on their credit history and spending patterns. Cardholders can check if they are eligible for a pre-approved loan by logging into their credit card account or contacting the card issuer directly.
Step 2: Choose Loan Amount and Tenure
Once pre-approved, cardholders can select the loan amount they wish to avail and the preferred repayment tenure. It is essential to consider the repayment capacity and choose an amount and tenure that aligns with one’s financial goals.
Step 3: Avail the Loan
After selecting the loan amount and tenure, cardholders can request the loan through their credit card account or by contacting the card issuer’s customer service. The approved loan amount will be credited directly to the cardholder’s bank account.
Step 4: Repayment
The repayment of the personal loan on a credit card is typically done through Equated Monthly Installments (EMIs). Cardholders need to pay the EMI on or before the due date each month until the loan is fully repaid. Timely repayment is crucial to maintaining a positive credit history.
Additional Read: Everything you need to know about the charges associated with a Personal Loan
Advantages of Personal Loans on Credit Cards
Availing a personal loan on a credit card offers several advantages:
1. Instant Access to Funds
Cardholders can quickly access the loan amount once they are pre-approved, providing immediate financial assistance during emergencies or urgent needs.
2. Competitive Interest Rates
Credit card loans often come with competitive interest rates compared to other forms of unsecured loans, making them a cost-effective option for borrowing.
3. No Collateral Required
Personal loans on credit cards are unsecured, meaning borrowers do not need to pledge any collateral or assets to avail the loan.
4. Flexible Repayment Tenure
Cardholders can choose a repayment tenure that suits their financial situation, ranging from a few months to a few years, ensuring manageable EMIs.
5. Improve Credit Score
Timely repayment of the credit card loan can positively impact the cardholder’s credit score, enhancing their creditworthiness for future borrowing needs.
Additional Read: How to Get Personal Loan with Low CIBIL Score? Know Everything
Considerations for Personal Loans on Credit Cards
While personal loans on credit cards offer numerous benefits, borrowers should consider the following factors:
1. Loan Terms and Conditions
Carefully review the terms and conditions of the credit card loan, including interest rates, processing fees, and any additional charges.
2. Repayment Capacity
Assess your repayment capacity to ensure that you can comfortably manage the EMIs throughout the loan tenure.
3. Impact on Credit Utilization Ratio
Availing a credit card loan can affect your credit utilization ratio, which is the proportion of credit card limit utilized. It is advisable to maintain a healthy credit utilization ratio to preserve a good credit score.
4. Compare with Other Loan Options
Before opting for a credit card loan, compare it with other loan options available in the market to ensure you are getting the best deal.
Additional Read: Instant Personal Loans Using Aadhaar Card: A Hassle-Free Guide
Conclusion
A personal loan on a credit card can be a valuable financial tool, providing instant access to funds at competitive interest rates. Understanding the process of availing such loans, along with the associated advantages and considerations, empowers cardholders to make informed financial decisions. Whether it’s handling emergencies, consolidating debt, or financing significant expenses, a personal loan on a credit card offers convenience and flexibility when managed responsibly. Remember to assess your needs, repayment capacity, and compare loan options before making a choice that aligns with your financial goals.
Additional Read: 10 Best Personal Loan Apps For Students in India