Payday loan versus credit card loan: what is the right choice for you? – Your personal finances: Advice and recommendations from A to Z

Credit card loans

Credit card loans

Credit card loans, as well as payday loans, have become a way of life today because many people prefer to use both types of loans whenever they need money for something. However, when they take out a loan, some people remain in a dilemma: should they take out a loan on their credit card or opt for a payday loan? Which of the two would be best for them?

Industry experts say that the choice of the type of loan is totally dependent on the borrower’s requirement. Since both types of loans have their own advantages and disadvantages, one should only choose one if the purpose of the loan and its repayment capacity are fully understood.

The payday loan, for example, is an unsecured loan that is usually contracted for an expensive purchase, medical emergency, vacation, deleveraging or even marriage. There is no restriction on what you can do with a payday loan, which makes it attractive to many. Credit card loans, on the other hand, are pre-approved loans that are granted up to the maximum limit of a credit card. However, it is not the same as cash withdrawals at an ATM.

Experts say that payday loans are ideal if a large sum of money is needed. However, in the case of lower amounts, the credit card option may be preferable. But note that your credit limit will be temporarily blocked to this extent.

Regardless of the loan option you choose, compare their specifications before choosing one.

Regardless of the loan option you choose, compare their specifications before choosing one.

1. Loan eligibility: Credit card loans can easily be used against the unused credit limit of any credit card. No other documentation is required for this loan. Although this is the fastest way to obtain funds, not all clients are eligible for this loan. With a regular monthly payment, the blocked limit on the credit card is released.

In the case of a payday loan, banks only approve a payday loan application after a thorough background check on the borrower’s financial capacity. The background check includes the borrower’s financial credibility, professional contact information and credit history. In this way, the bank discovers if you will be able to repay the loan.

2. Documentation and disbursement: In case of payday loan, you must provide a set of documents, such as your proof of identity, your bank statement for the last 6 months, your ITR for the last 3 years, as well as your PAN and your proof of address, whether you are employed or not. employee. Loan disbursement takes longer in the case of a payday loan because it requires documentation and due process. Experts say that one should apply for a payday loan for financial reasons and not in an emergency with a time constraint.

A credit card loan, in comparison, does not require any documentation, since you are already a customer of the credit card company. In case of loan by credit card, the loan amount can be immediately refunded if the borrower holds a savings account with the same bank, which is convenient in case of urgent need of an unsecured loan.

3. Loan Amount: The amount of the loan you choose depends on your cash requirements and your financial needs. You can opt for a credit card loan if you need a small amount. The loan amount will however depend entirely on your credit card limit. Your loan application will probably be rejected if the loan conditions you requested exceed the limit of your card.

The amount of the payday loan varies from a few thousand rupees to a few lakhs, which gives you a greater leverage. The amount, however, depends on the borrower’s credit profile and repayment capacity. In case of medical emergency, you can opt for such loans.

4. Interest Rate: While opting for a loan, this is one of the most important points to keep in mind. In the case of payday loans, interest rates range from 13% to 22%. The interest rate, however, depends on the credit history of the borrower. If you have a good credit history and do not have a lot of delinquent loans, it is likely that you will get a lower interest rate. Some banks also offer lower pay rates on payday loans.

Credit card loans are offered at interest rates ranging from 10% to 18%. Experts suggest borrowers to negotiate a lower interest rate because they are already clients of the company because they have a good repayment history.

5. Term of office: In the case of a credit card loan, repayment terms are shorter and range from 6 to 36 months. Therefore, this option should be used for small purchases.

On the other hand, payday loans have a repayment period ranging from 1 to 5 years, which gives the borrower sufficient time to repay his debt.

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