It is good that you are aware of the various options you have for your financial need. However, in order to make a choice between your two options- credit card loan and personal loan- we will have to draw a comparison based on your needs and situation.

Credit card loan A credit card loan is a loan that is pre-approved by the bank and does not require any documentation. It is, often, the fastest way to attain unsecured credit or money from a lender. In this loan, a proportion of your credit card limit, that is unutilized, is offered to you as a loan. Do note that a loan on credit card is not the same as cash withdrawal from a credit card.

Personal loan A personal loan is usually an unsecured loan that you can take for whatever purpose you want. An unsecured loan is a loan you get from lenders without keeping any asset as a collateral or security.

You could take a personal loan for medical reasons, to fund your expensive purchases, to go for a luxurious vacation or even to consolidate your debt. Do note, however, that the interest charged on personal loans is high as they are unsecured loans and the lenders have nothing to liquidate if you default on your payment.

So, what’s the difference between credit card loan and personal loan?

Although they seem quite similar, a credit card loan and a person loan are quite different on various parameters:

1. Documentation: A personal loan is a new loan that you apply for and hence, requires a lot of documentation from the borrower. In contrast, a loan on credit card does not require any documentation as the bank already has all the documents it could need for lending an amount to you. As it doesn’t require any additional documentation, a credit card loan is faster to attain vis-à-vis a personal loan. 2. Rate of interest: Usually the deal maker or breaker, the interest rate charged on a personal loan is usually between 13-22% while credit card loans offer interest rates of 10-18%.

Another another key factor is that credit card loans can be availed at flat interest rates, while personal loans are available with reducing balance rates. Monthly interest in case of flat rate loans is applied on the initial loan amount and it remains the same for the entire tenure, even if the principal amount decreases. However, in case of reducing balance loan, the interest outflow decreases as and when the principal is paid.

3. Access to loans: To avail a personal loan from a bank, you do not have to be its customer. The same however doesn’t hold true for a loan on your credit card, as you must be owning the bank’s credit card to avail of a loan from it.

4. Tenure: Credit card loans can be taken for shorter tenures, while personal loans are usually long duration loans.

5. Loan amount: A credit card loan is a favourable option when you’re in need of a small loan amount, but you can easily avail a loan of a larger sum with a personal loan.

Make a choice between credit card loan and personal loan based on your financial need, time frame for which you need the loan and how soon you need it. It will be easier for you to make a decision once you are clear about your requirement.