Should you apply for credit card or personal loan during financial uncertainty?

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A personal loan is an unsecured loan. There is no need to keep any collateral for it. On the other hand, a credit card provides a pre-approved credit limit, you can use it as a loan whenever you want. So, Which is better to use, a personal loan or a credit card? It depends on how quickly you need the money. If you have to accomplish urgent tasks like buying flight tickets, medical bills, or paying room rent, where you need to pay money immediately, a credit card is better. In such situations, you don’t have the time to wait for a personal loan to be approved. Another important thing is how much money you need?

If you need a large amount, let’s say 2-3 lakh rupees and you can’t repay all at once then you can take a personal loan. However, if you need a small amount and can repay it within one or two months, using a credit card might be more suitable.

The decision also depends on the interest rate. The interest rate on a personal loan is generally lower than on a credit card. Usually, a personal loan is available at 11 to 18 percent, depending on your credit score. While credit cards charge 35-40 percent, and in many cases, even more!

Credit cards provide you interest-free period of up to 45 days If you can’t repay the borrowed money within this period, then it becomes expensive as 3 to 4 percent interest is levied every month. In such a situation, before spending money with credit card, make sure that you repay the full amount by the next due date.

On the other hand, you have up to 5 years to repay a personal loan. Not only that, if you use the credit card too much, then also you can get caught in debt trap. If your credit card dues have become too high, then by taking a personal loan, you can pay off your credit card dues.

There are two reasons for this. First, the interest rate on a personal loan is lower. It will reduce the interest burden.  Also, you will be paying in EMIs which is a more structured way to pay back loan. It will enable you to comfortably repay at your chosen time.

Think of it like this: a personal loan or a credit card, both are debt. So, before borrowing, you should  consider all the factors.

If you need less money, and it’s for a short period, you can use a credit card. But if you need a significant amount of money and you are confident that it may take a few months or a year to repay the loan, then taking a personal loan is the right choice.

The most important thing is, whether it’s a credit card or a personal loan, never borrow for meeting unnecessary expenses.