Behavioural biases that damage your investments!

To arrange emergency fund in the pandemic time is one of the toughest challenges. The pandemic made us understand how important emergency fund is. Taking loan against your credit card is one of the quickest options to arrange funds. Loan against credit card is quite like a personal loan. Both are unsecured loans that require no collateral and comes with a fixed rate of interest over a predetermined tenure. Money9 gives a brief description of how you can arrange such funds and what are the top points to keep in mind while taking such loans.

9 points

1. Always try to pay your credit card dues in time. This would have a big implication on the sanction of your subsequent loans.

2. Don’t default. Credit card defaults affect credit scores quite significantly. A default on a loan against a credit card makes you a loan defaulter, which has severe effect on the cardholder’s credit score.

3. Like all other loans, loan against credit card also have a processing fee. These fees are levied on the specified loan amount. Usually, processing charges on these types of loans range between 1% and 5% of the loan amount.

4. Most credit card providers and banks offer flexible tenure option up to 60 months or more. Therefore, the cardholder can opt for a repayment period of his/her choice between 12 months as 60 months, depending upon the amount and the personal profile.

5. One can pre-close his/her credit card loan any time he/she wants. However, pre-closure charges, if any will be levied, as determined by the lender itself.

6. One should keep the loan limit in mind. Otherwise, the individual has to pay a higher charge. Suppose you have a credit card limit of Rs 1 lakh and the loan amount is Rs 70,000, then your credit card limit stands at Rs 30,000. Any amount more than Rs 30,000 would attract a high interest charge.

7. Your credit card due or loan repayment both have a direct effect on your credit score. So always try to pay both in due time.

8. Please read all rules and regulations before requesting for a loan or top up loan against a credit card since there are many charges. Read the fine print before opting for a loan.

9. Taking a loan against your credit card is not a very good idea since the interest rate varies roughly between 14% and 20%. Try to utilise other avenues first.

 End point

 “Loan against credit card is a good option but try not to utilise it since interest rates are high. Moreover, if you default even for a day it would have negative effect on your credit score,” said Nilotpal Banerjee, a Kolkata-based personal finance expert.

Once a person uses this option, the lender will run a rigorous inquiry to sanction a fresh loan in future, added Banerjee.