Making Informed Choices: Quick Loans vs. Credit Card Loans

When faced with financial emergencies, having access to quick financing becomes crucial. This is where credit cards and getting a quick loan online comes into play, offering essential financial solutions. The choice between these two options depends entirely on your specific requirements, whether you need immediate cash or a convenient payment method. In this blog, we will explore the features of both loan types, making it easier for you to compare and make an informed decision.

Factors to Consider when Choosing between Instant Loans and Credit Card Loans:

Quick Loans vs. Credit Card Loans

1. Loan Ticket-Size

One of the primary differences between instant loans and credit cards lies in their loan ticket size. Credit cards typically come with a credit limit that is twice or thrice your monthly salary. For instance, if your monthly salary is Rs.50,000, your credit limit may range from   Rs. 90,000 to Rs. 1,30,000.

On the other hand, instant loans are not bound by such rules. Unlike credit card loans, the loan amount for instant loans is determined by various factors such as your debt-to-income ratio, job stability, credit score, and more. As a result, instant loans generally offer higher ticket sizes, with most alternative lenders providing loans ranging from Rs. 50,000 to           Rs. 15,00,000. If you require financing for a significant expense, opting for an instant loan is often the better choice over a credit card.

2. Acceptance and Ease

Credit cards offer the convenience of making payments at establishments that accept the card. However, this limits your purchases to some extent, as you cannot access hard cash. In contrast, instant loans provide greater flexibility in terms of usage. You can utilize the loan funds for various purposes such as home repairs, rental deposits, buying a used car, or consolidating existing debts. The loan amount is directly transferred to your bank account, allowing you to use it without limitations.

3. Speed of Disbursal

As the name suggests, instant loans offer rapid disbursal, making them suitable for meeting urgent financial needs. In contrast, credit card applications and approvals may take several days. Moreover, there is a chance that your credit card application may not be approved at all, even after days of anticipation. Such delays can disrupt your plans. Additionally, credit cards often come with high-interest rates and annual charges, making them a more expensive option compared to instant loans for cash needs.

4. Installment Debt and Revolving Debt

While both instant loans and credit cards involve debt, they differ in terms of the debt’s nature. Credit cards are associated with revolving debt, wherein the interest rate fluctuates based on your monthly dues. In contrast, instant loans involve installment debt, where fixed monthly installments are paid. Even if you have outstanding dues, the interest rate for installment debt remains unaffected. Credit card debt can become more expensive when you have high outstanding balances, while installment debt offers stability in terms of interest rates.

5. Tenure

Credit cards are primarily designed for smaller purchases and typically offer tenures ranging from 30 to 45 days. If you fail to pay off your dues within this period, a high-interest rate will be levied on the outstanding amount. In contrast, instant loans have longer repayment tenures, ranging from 1 year to 6 years. This extended period allows you sufficient time to repay the loan without straining your savings.

6. Interest Rates

Interest rates play a crucial role in loan decisions. For instant loans, the interest rate is determined based on your credit score. A good credit profile may qualify you for a loan with a low-interest rate. Similarly, credit card loan interest rates depend on your profile and the specific credit card provider. Credit card companies often run promotional offers with flat interest rates, making it advantageous to avail of a credit card during such periods.

7. Documentation

Instant loans typically require minimal documentation. Basic documents such as your ID card, latest payslips, and address proof are usually sufficient. The entire loan process is conducted online, eliminating the need for physical documentation. You can upload the necessary documents on the lender’s portal and await loan approval. Similarly, credit cards also have straightforward documentation requirements. Existing customers may even be eligible for a credit card without additional documentation.

Final Thoughts

Both instant loans and credit card loans offer viable financing options for various expenses. If you require a substantial loan amount and prefer to repay it over a longer period, an instant loan is a suitable choice. On the other hand, if you aim to build your credit score through responsible spending on short-term expenses, a credit card loan is preferable. Moreover, credit card usage can also earn you rewards and cashback benefits. Assess your specific needs and financial circumstances to make the best decision for your situation.

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Sumit Kumar Yadav has experience analyzing business and finance of big to small companies. Loan, Insurance, Investment data analysis are his key areas.