Personal loan vs credit card: What serves you best in interest rate and borrowing?

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A personal loan is money that you can borrow from a bank, NBFC, or lending app, which you need to repay in fixed monthly instalments, called EMIs, over a fixed time period—typically 1 to 5 years. Personal loans are best suited for large, pre-planned expenses such as home renovation, consolidation of debt, or wedding spending. One of the biggest advantages that personal loans have over credit cards is that they less expensive if you have a good credit history. In India, the interest rates on personal loans range between 10% and 18%.

They can offer you with predictable repayment options and fixed terms, which helps with budgeting. However, they also come with some extras like processing charges, and the bank may penalise you if you decide to pay off your personal loan earlier than intended. Apart from this, to get a personal loan, you need to submit an income proof, and the approval may take a few days unless it's a pre-approved offer.

When to use a credit card instead

A credit card is a revolving credit facility that enables you to borrow up to a limit and pay back in flexible periods. It is better for short or small expenses like paying bills, groceries, or urgent necessities. When you settle your bill in full every month, you can obtain interest-free credit for 45–50 days. Still, if you roll over your balance, the interest fees can be simply astronomical—typically 24% to 42% annually in India.

Credit cards are ideal for small, repeated purchases and can reward, provide cashback, or travel points. But if managed foolishly, the debt can quickly snowball, and minimum payments can leave you cycling round and round.

Key differences in interest and repayment

Whereas personal loans is an arranged repayment plan with fixed interest and duration, credit card debt is open-ended with higher interest and without specified duration. For significant expenditure, where repayment will extend for more than a few months, personal loans will generally be cheaper. For short-term borrowing which is paid off at once, a credit card is perhaps more convenient—assuming you pay off in full.

What to remember before choosing

If you need frequent EMIs and are borrowing heavily, go for a personal loan. If you have a pressing need and anticipate repaying during the interest-free period, a credit card can be used. Your repayment habit, income, and credit history must be the basis of the decision.

Take what suits you

Both personal loans and credit cards are used differently. Personal loans are meant for long-term, high-cost borrowing, while credit cards are ideal for low, frequent payments if cleared in time. Understanding your spending habit and repayment capacity will help you decide which one is right.

FAQs

Q. Which has a lower rate of interest—personal loan or credit card?

Personal loans are cheaper by interest (10–18% p.a.) than credit cards (24–42% p.a.), especially for longer tenors.

Q. Ought I repay credit card debt through a personal loan?

Yes, the majority of people take personal loans to repay debt because they offer lower interest rates and disciplined EMIs.

Q. Is it a good idea to use a credit card in emergencies?

A credit card can be used for emergencies if you can pay back within the interest-free period. Otherwise, it could be more cost-effective with a personal loan.