Emergencies with regard to one’s finances can crop up at any time in one’s life. So instant personal loans or credit cards are the quick ways that come across our minds, right? And what about the lesser-known but useful facility of Line of credit for personal loans?
Which one to take? Let’s compare it for you.
Rate of interest
Due to the large number of financial institutions, such as banks and NBFCs, that provide personal loans, the interest rates on personal loans, including the Line of credit facility, typically fall within a range of 10 percent to 24 percent per annum. This range is determined by the financial institution providing the loan as well as the various aspects of the applicant’s credit profile, including monthly income, credit score, job profile, employer’s profile, etc.
Also, you will be only charged for the used amount out of the limit in the case of a Line of credit.
Existing personal loan borrowers can also take a personal loan balance transfer facility just like a home loan or credit card balance transfer.
On the other side, if you pay off your credit card balance in full before the due date, you won’t be subject to any interest charges on the money you spend using the card. If you are unable to repay the balance in full by the due date, the card issuer may impose significant finance charges of between 23 and 49 percent per annum.
In addition, if you are unable to repay even the smallest amount that is due by the due date, you may be subject to a late payment cost of up to Rs 1,300, which will also have a negative impact on your credit score.
Amount of loan sanction
A borrower’s ability to make monthly payments and the length of time they want to keep the loan play a significant role in determining the maximum loan amount that can be approved for a personal loan and personal loan balance transfer request. It can range anywhere from 50,000 rupees to 25 lakhs, although certain financial institutions, including banks and NBFCs, say they can approve considerably greater loan sums, even up to 40,000 rupees.
When it comes to credit cards, the credit limits that are assigned to each cardholder are determined by the card issuer based on the monthly income of the cardholder as well as their history of repaying previous debts. The holder of a credit card has the option of either swiping the card or taking out a loan against the card up to the credit limit that has been established. The amount that is either spent on the credit card or borrowed as a loan against the credit card will have an effect on the credit limit. The credit limit will gradually increase as the cardholder makes payments toward the balance on the credit card.
Processing time
Applicants for personal loans like Line of credit are typically needed to send in copies of their paystubs or ITR forms in addition to other documentation before the loan can be processed and approved. The verification process for these documents typically takes some time, which is why the disbursement of personal loans might take anywhere from two to seven days. However, certain lenders have a tendency to claim that they can disburse personal loans considerably more quickly than others, particularly in the case of pre-approved personal loans that are offered to particular consumers. Also, if you wish to request a personal loan balance transfer, it may usually take some more time because the lender will assess a lot of things about a current loan before taking over the outstanding balance through balance transfer.
When it comes to credit cards, the access to credit is typically instantaneous for actions such as swiping the card at a point of sale terminal or for online transactions. On the other hand, since they do not require any further documentation, credit facilities such as EMI conversion and loans against credit cards are typically processed on the same day they are applied for. Credit card loans can supposedly be disbursed almost immediately by certain card issuers who make this claim.
Repaying term
The repayment term for a Line of credit or other personal loan facilities typically ranges anywhere from one to five years, with a select few lenders providing a lower minimum term of six months and a lengthier maximum term that can reach as high as six or seven years. On the other hand, although outstanding dues on a credit card are not required to be repaid within a predetermined schedule, it is always advisable to repay the entire dues by the due date in order to avoid incurring hefty finance charges. This is because credit card companies typically assess finance charges based on a percentage of the balance owed. Those who are having trouble making the one-time payment in full on time have the option of converting their payments into EMIs, which have terms ranging from three months to five years.
Processing fees
The processing fees associated with personal loans can range anywhere from a few hundred dollars to three percent of the total loan amount, depending on the lender and the amount of the loan. When it comes to credit cards, swiping credit cards does not incur any processing fees; however, when obtaining a loan against a credit card or selecting the EMI conversion facility, there is a good chance that there will be processing fees involved. These fees tend to vary among card issuers.
When it comes to personal loans and the personal loan balance transfer requests, some lenders do not impose a prepayment penalty, while others incur prepayment costs that range anywhere from 2 percent to 5 percent of the outstanding debt or the amount that was prepaid. In addition, there are financial institutions that will not permit a borrower to make a prepayment on a personal loan until after they have paid off a predetermined amount of the loan’s monthly instalments.
The issuers of credit cards often charge a prepayment penalty of approximately three percent of the total loan amount for loan-against-credit-card and EMI conversions. This penalty applies to credit cards.
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