What to choose between loans and credit cards?

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Loans and credit cards come with individual benefits and features that make them unique for specific situations. Hence, before opting for either of them, you need to check out all their intricacies.

Loans

Loans can be both secured and unsecured. However, the latter is the more widely availed one. A personal loan is a superb example of unsecured loans that come with no usage restrictions.

Advantages of loans:

  1. They require only a few documents

Unsecured loans can be availed by providing only a limited number of documents like KYC, address proof, proof of income, bank account statements, etc.

  1. They are disbursed within 24 hours

Financial institutions can disburse an unsecured loan within 24 hours as they are mostly approved within a few minutes owing to the minimal documentation requirements.

  • Borrowers can get up to Rs. 25 Lakh

Unsecured loans can provide up to Rs. 25 Lakh to borrowers who can cater to any financial situation.

  1. These loans come with flexible repayment tenures

A typical unsecured loan can come with repayment tenures ranging from 12 to 60 months.

  1. Part pre-payment and foreclosure facility

Customers can part pre-pay, i.e. repay a large portion of the loan amount to reduce the EMIs or tenure. They can also foreclose the loan by repaying the entire amount before the end of the tenure.

Disadvantages of loans:

  1. A high rate of interest

Unsecured loans come with a high rate of interest. The interest rate can also increase if the loan tenure is short.

  1. Additional charges

Customers have to pay other charges when they opt for part pre-payment or foreclosure. They also have to pay a processing fee when availing them.

  1. Credit cards

Credit cards are either secured or unsecured. Secured credit cards are provided only against a fixed deposit. An unsecured credit card is, therefore, more popular.

Advantages of credit cards:

  1. Reward points

Customers get reward points with every transaction they make using credit cards. These points can be redeemed for coupons, cashbacks, etc.

Applicants can also enjoy attractive reward points as a welcome bonus when they apply for a credit card. Furthermore, they can get additional reward points when they spend a specific amount per month/year.

  1. Grace period

Cardholders get a grace period of up to 45 days. They can pay the bill within this time without any additional interests or charges.

  • Added features

Some credit cards provide complimentary airport lounge access. For example, one can get up to 8 complimentary lounge accesses at airports per year and unlimited paid accesses with the Bajaj Finserv RBL Bank SuperCard. These cards also come with several other industry-first features.

  1. Interest-free loan and ATM cash withdrawal

Some lending companies provide an interest-free loan for a period of up to 90 days with their credit cards. Hence, apart from making purchases, cardholders can also take a loan on the unutilized limit.

Few credit cards even provide the option of interest-free ATM cash withdrawals. Customers only have to pay a negligible processing fee for availing this feature.

Disadvantages of credit cards:

  1. A high rate of interest and charges

Cardholders have to pay a high rate of interest if they fail to clear the bill within the grace period. They may also need to pay late payment charges.

  1. Annual fee

Some companies charge their customers a flat yearly usage fee on their credit cards.

The bottom line is you will get more features and benefits when you apply for a credit card as compared to a loan. Credit cards are ideal for availing immediate cash without going through any further documentation. Make your choice according to your requirement and meet your financial crunches efficiently.

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