Instant Loan Vs Credit Card Loan – What’s Better for You?
In case of the need for liquid funds, there are multiple options available in the market. Amongst the different possibilities, you could go for either an instant loan or pay the loan off with a credit card. Whichever source you choose, each of them is secure and will make cash accessible to you instantly.
In the end, it all boils down to your requirements and plan of action, depending on whether you need money or you need a simple card to pay the bills. In simple terms, you need to a make choice, whether you need instant funds in your account or you need a card to spend from.
Each of them, instant loans and credit card loans are the financial tools that help the borrower to get instant cash. A credit card allows the borrower to swipe the card and avail the benefits of those cards.
This source is very different from the traditional sources and the lending processes. On the other hand, the instant loan is the advanced loan that comes in the category of personal loans, where the individual borrows the funds either online or offline, but there are fewer limitations.
As everyday consumers, the need for credit does happen at some point. Credit offers us the monetary leverage that helps the borrower manage the financial crisis. With everything kept aside, the credit and terms can get structured depending on the statements, terms, and conditions, provisions, etc.
So, there must be a question in your mind, does it eventually boil down to choosing the lender that ends up offering the lowest interest rate? The answer to the question is ‘No’. This might be one of the criteria but not the only one.
As per experts, it is better to take a credit loan for a shorter period. On the other hand, an instant loan is generally suitable for the individuals who wish to repay the loan amount not instantly but take a few years to repay.
Credit Card Vs. Instant Loans
As the name suggests, an instant loan is available instantly that does not require many rules, regulations, and background checks. An instant loan is available for a fixed period, where the repayment tenure ranges from 12 to 60 months, depending on the different factors. An instant loan is payable via EMIs (equal monthly installments) that is a combination of principal amount and an interest rate.
On the other hand, a credit card loan is referred to as revolving of the debt. In this case, the borrowed amount primarily depends on the funds spent on the credit card and the balance left at the end of the monthly billing cycle.
How Does Credit Work?
When a borrower needs funds to be it a small amount or a significant amount, in this case, the credit card loan comes handy and also is a convenient way to repay. The best part is that you could use your credit card, either offline or online. However, with all the positives, there are some negatives also involved.
If you end up losing control of your credit card purchases, and you do not have enough funds to pay the entire balance in full in the same monthly billing cycle, you would be in trouble. In such a case, you will be bound to pay a high-interest rate on the amount unpaid. Over time, this situation can lead to an accumulation of funds, and you would fall deeper into a debt trap.
The primary reason why an individual very often gets into this vicious circle is that the credit card companies do not ask to pay the amount instantly. The bill comes at the end of every month, and sometimes the amount might come as a shocker.
The credit card users can continue to use the credit card by paying the MAD (Minimum Amount Due), which is mentioned in the credit card statement. The user can continue to use the credit card until finally, the balance gets exhausted. However, while using the credit card, the interest keeps on accumulating.
The APR (Annual Percentage Rate), of the card, becomes the sole factor determining the amount of interest rate charged to the credit card user. With a high APR, the interest rate piles up quickly.
Credit card loans are very similar to instant loans, where the only difference is the ‘Credit Limit’. The amount that is borrowed is equivalent to the amount spent on the credit card and the amount that is payable in the subsequent billing cycle. One thing to note is that most credit card loans are unsecured.
Very few selected credit cards warrant some security of yours, but this is a sporadic case. Any secured credit card does not ask for the collateral. But the credit card user in case of a credit card loan will be required to put a cash deposit in the form of collateral for a secure credit.
How does Instant Loan Work?
Instant loans are slightly a better option than credit card loans because the former gives proper control over the repayment. Also, instant loans are much easier to avail because the eligibility criteria, in this case, is not very stringent. Depending on the many factors such as qualification, profile, needs, the individual can avail the different types of instant loans. There is also a provision to customize the loan, depending on the needs of the individual.
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Detailed Difference Between Instant Loan Vs Credit Card Loan
It is very typical to feel confused when both the options offer similar things, with very little variation here and there. However, before zeroing the offer, there are a couple of considerations that need to be kept in mind. One of the significant concerns is getting an instant loan from alternate lenders or credit cards. The credit card provision is almost the same as that of instant loan, where both the parties involved agree to the loan limit, late charges, or the underwriting requirements.
Despite the similarities, there are considerable differences when different factors are analyzed individually. Let us dive deep to check out the difference between the two financial options:
1. Documentation:
Instant loan is the easiest to get, as it requires the borrower to go through a fundamental documentation process that involves the following:
- ID card
- Address proof
- Latest payslips
Also, getting an instant loan is entirely online, as there is no need to physically submit the documents. All that the borrower has to do is, to upload the relevant documents on the portal of the lender or the borrower could send it over the mail. On the other hand, a credit card loan does not require much documentation. If you avail of the bank’s credit card loan, your card is associated with; you would not be required to submit any documentation.
2. Interest:
When we choose whether to go for an instant loan or credit card loan and weigh factors, the rate of interest is the most critical factor that cannot be ignored. The interest rate charged on the borrowings is considered the essential element that one needs to consider while availing the loan, in any case. In general terms, the instant loan is offered at a rate of interest ranging between 10 to 24% depending on multiple factors such as CIBIL score, history, etc.
On the other hand, the rate of interest in a credit card loan can range between 16 to 32%, depending on the lender. However, in the case of credit card loans, multiple offers keep ranging. Hence, the borrower should try to avail it, especially when offering a loan at a lower interest rate.
3. Unsecured loan:
Both instant loans and credit card loans come under the category of unsecured as no collateral is required at any stage. Although both of the options are unsecured, each has its terms and conditions for security purposes. In both cases, the borrower will have to sign the loan agreement post understanding the rules, regulations, and T&C.
4. Tenure:
Another essential difference between instant loans and credit card loans, in tenure. Credit cards are mainly tailored for petite purchases; hence the tenure ranges from 30 to 45 days. In case you end up defaulting on the repayment of the loan within the stipulated time frame, a very high-interest rate will get levied on the outstanding amount. However, one good thing about a credit card loan is that you can pay multiple times within the credit limit.
In the case of instant loans, the tenues are relatively flexible. The ticket-size of the instant loans is higher; this is why the repayment window, in this case, ranges between 1 – 6 years. In this case, the borrower gets enough time to repay the dues without defaulting the payment.
5. Ticket Size:
One of the most significant differences between instant loans and credit card loans is the ticket size. Generally, the credit limit in the credit card case is either twice or thrice that of the monthly salary. For example, if the monthly salary is 50,000 INR per month, then the credit limit will be 1,00,000 INR or 1,50,000 INR.
However, instant loans do not have such rules or credit limits. In the case of credit loans, the salary is not the determinant of the loan amount. Here, many other factors kept into consideration while sanctioning the loan to the borrower. Some of the factors are:
- Debt-to-income ratio
- Job stability
- Credit score
The ticket size of instant loans is way larger. The lenders in case of instant loans offer anything in between 1,00,000 INR – 15,00,000 INR.
6. Expenses:
When you choose the credit card loan to purchase something, you can use the card only with specific lenders who use it. This ends up limiting your purchases as you will not have access to hard cash. However, instant loans do not have such options, as the funds are flexible to be used anywhere. You could either be looking to repair the house, pay your deposits, buy a car, or pay off your existing debts, it can be done with the instant loan quickly. The loan amount directly gets credited to the borrower’s bank account, which makes no limitation on the usage. It can be used anywhere by the borrower.
Hence, both instant loans and credit card loans have their own pros and cons. But in case you are looking for funds for a longer time, it is better to go for an instant loan instead of a credit card loan.