Personal loan vs credit card: Which is for you?

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When you need money urgently, both personal loans and credit cards offer instant access to money—but choosing correctly can keep you away from high interest and long-term debt. While credit cards offer convenience and simplicity of flexibility, personal loans offer scheduled EMIs and less interest over prolonged periods of borrowing. Being aware of the pros and cons of both will help you decide on the best option according to your financial situation.

Interest rates are the major distinction

Personal loans carry a fixed interest rate of 10% to 18% annually, depending on your institution and lending history. Credit card statements, on the other hand, carry up to 36% to 42% annually interest if paid with a roll-over in instalments and not in cash. In case you plan to pay over months, personal loans are significantly less expensive than credit card dues roll-overs.

Credit cards are convenient but dangerous

A credit card can be handy for short-term spending, urgency, or vacations—provided you pay the amount within the interest-free term (in most cases, 45-50 days). However, if you pay only the minimum, the interest accumulates very quickly and gets you trapped. Do this only if you are certain of making regular payments.

Large expenses are better done through personal loans

If you’re looking to fund a big-ticket purchase like a wedding, medical procedure, or home renovation, personal loans are better suited. They offer lump-sum amounts with predictable EMIs and repayment periods ranging from 1 to 5 years. This structure helps with financial discipline and long-term planning.

Credit score affects both options

Irrespective of whether you avail a personal loan or charge the expense to your credit card, the credit score is most crucial. A good rating (750+) can fetch you better interest rates and conditions. Missed utilization of your credit limit or skipped EMI beyond what is obligatory can really hurt your score. Choose an EMI repayment scheme that best suits your cash flows so that you are not defaulting.

Balance flexibility with control

Credit cards give you liberty—spend how you wish and pay in instalments—but the same facility, again and again, leads to overspending. Personal loans give you discipline in the form of well-timed EMIs but are not as flexible. Your choice hinges on whether you wish to have discipline or need a cushion against unplanned expenses.

FAQs

Q. Is it more economical: personal loan or credit card?

Personal loans are cheaper for longer tenors, and interest starts at 10%, whereas credit card charges can go to about 40% per year if paid only through EMI mode.

Q. Are credit card charges reparable in EMIs similar to that of a personal loan?

Yes, every credit card offers an EMI conversion option, but it still carries a higher interest rate compared to most personal loans. The repayment period may also be shorter.

Q. How and when should I use a personal loan compared to a credit card?

Use a personal loan if you need a gigantic lump amount with fixed monthly instalments—such as for school, medical bills, or debt consolidation.