What is the difference between a credit card and personal loan?

When the consumers are short of money, they thus often turn to credit cards or either  personal loans for a cash infusion. Credit cards, are those  which are small plastic cards which are issued by a financial institution or by a payment provider like Visa or MasterCard, offers  a line of credit that can thus be used for the  purchases or consolidating of debt. As long as the borrower  pays  his statement, or the money which he borrows , within the grace period of 25 to 30 days, he  generally won’t require to pay interest or other fees.

Personal loans and credit cards are both the types of credit which are provided by financial institutions. They can be for the similar amounts, but the article tells us about the difference between a personal loan and credit card.

  1. A credit card is thus known as revolving debt. A credit card also has a credit limit which borrower can use as often as he likes  and it’s up to him to pay the entire balance off at the end of the month.

A personal loan, on the other hand, is considered as a fixed debt. The borrower receives a fixed amount of money and he can repay it in equal installments over a fixed number of months.

  1. Personal loans are for a finite amount of time, whereas the credit cards are considered as a revolving line of credit.
  1. Personal loans are thus usually available for the terms of between one and seven years and the borrower receives  the entire loan amount at the beginning of the term. The borrower then makes ongoing payments in order to repay the loan in full.

Credit cards however do not come with terms. Borrower is offered a credit limit and it is  required in order  to make ongoing repayments for the purpose of keeping  your account in a good standing. Borrower can continually draw up to and thus  including that limit and then can spend however much he chooses  on his  card. Borrower thus  needs  to repay a percentage of whatever he spends  each month.

Credit card rates are thus variable, so the amount which the borrower is charged for maintaining a balance may change over time.

In the case of a personal loan, if the borrower takes out an unsecured loan, then he could be hit with a seriously high-interest rate. That’s because, in order to offset the risk of lending the money, the lenders tack on additional fees or other charges.

Structurally, the credit cards and personal loans are similar. They are both the forms of credit so they  both require a monthly repayment. What however differs are the features and its fees. Credit cards thus  offer interest-free days, balance transfers and also rewards but the personal loans are considered as more suitable for the purpose of  debt consolidation and also have a maximum loan term so the debt is always repaid. While an annual fees are popular with the  credit cards, personal loans however  favour application and also monthly services fees.

If the borrower has good control over his spending and he regularly follows his budget then a credit card could thus  be suitable. Personal loans also can charge borrower an early repayment fees, borrower would  need to confirm whether this is the case with the  lender.

Regardless of which borrower chooses , he needs to be disciplined in the way he uses  his credit card or personal loan and then make regular repayments.

By | 2017-11-04T08:31:22+00:00 November 4th, 2017|Personal Loan|0 Comments

About the Author:

Pulkit Jain is the founder of LegalRaasta – India's top portal for registration, trademark, return filing and loans. Pulkit is a veteran CA with over 10+ of experience.

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