If you're running low on pocket money, EMIs give you the choice to pay in instalments over time. But should you pay your credit card bill in EMIs or take a personal loan? Though both give you the facility to pay in instalments, the fees, terms, and risks vary. Read on for a quick contrast between credit card EMIs and personal loan EMIs that will walk you through choosing which one will fit your pocket.
Interest rates: personal loans are typically less expensive
Personal loans are less expensive than credit card EMIs. The interest rate on personal loans ranges between 10% and 18% per annum, while credit card EMIs range from 13% to 24% or even higher. If you want to pay back over 6 months or more, a personal loan will be less expensive. But if your credit card issuer is offering you a promotional rate of interest (for example, 0% for 3 months), that might be cheaper—if you repay in time.
Flexibility of loan amount and tenure
Personal loans give you more liberty to choose how much to borrow and for what term you want to repay—anything between ₹50,000 and ₹25 lakh and more, and tenures of up to 5 years. Credit card EMIs are limited by your credit limit, and will generally give you a repayment tenure of 3 to 24 months. If you need to borrow an amount and repay over a longer term, a personal loan is the better option.
Processing charges and prepayment fees
Personal loans often have a processing charge (2.5% of the loan value) and penalties for prepayment if you close it before the scheduled duration. Credit card EMI transactions may have lower or no processing fees, especially festive offers, and there are issuers who charge nothing on premature closure. Always check the overall cost involved before choosing either—sometimes a 0% EMI on a credit card has an invisible fee.
Ease of approval and credit effect
A personal loan boosts your credit mix and is also credited to the bureaus, so should help improve your score in the long run if repaid on time. Credit card EMIs, though, reduce your available credit limit and negatively impact your utilisation ratio, especially if outstanding is substantial. Credit card EMIs, though, are easier to enable and require no new documentation or approval.
Which one to choose?
A personal loan is usually cheaper and more convenient if you need money urgently and want to pay back later. But if your need is short term, and your card is offering low or zero cost EMI, it can be a useful option. Compare based on how much you want, when you can pay back and the total cost—interest and charges.
FAQs
1. Which is of lesser interest—credit card EMI or personal loan?
Personal loans tend to have lower interest. Credit card EMIs may look good but are not unless it's a 0% offer.
2. Can I prepay a credit card EMI before time?
Yes, all banks do allow payment of credit card EMIs early, but check if they charge a foreclosure fee.
3. Will taking an EMI lower my credit score?
Both the credit card and personal loan EMIs are reported to credit bureaus. Regular payments improve your score, although the credit card EMIs reduce your credit limit temporarily.
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