Credit Card Loan- Credit card loan is a pre-approved financial product. In this, cardholders can use a part of their existing credit limit as a personal loan. Usually no new documentation or lengthy approval process is required to avail this loan. This facility is provided on the basis of the cardholder’s credit history, repayment capacity and strength of credit profile.
What is a credit card loan?
This is an unsecured loan, which is linked to the available credit limit of the card. Instead of making a physical purchase, a fixed amount is transferred to the cardholder’s bank account. This money is debited from the credit limit and is repaid in the form of monthly installments within the stipulated time period.
However, its interest rates are usually higher than personal loans and interest starts accruing immediately, without any interest-free period.
How does this work?
Credit card issuing companies offer loans to eligible customers as per their internal eligibility standards. The loan amount is transferred to the customer’s account within a few hours or days. The repayment period can be up to a maximum of 60 months, while the processing fee is usually 1-2%.
What are the disadvantages?
The biggest disadvantage of a credit card loan is its high interest rate which can range from 12% to 24%. If you spend more than the limit or do not repay on time, it can damage your credit score and you may face difficulty in getting a loan next time. Delay in paying the loan leads to higher interest , which can make it difficult to manage finances for a long time .
Should you take a credit card loan?
If you need cash immediately and want to avoid paperwork, this could be an option. But delay in repayment can cost you dearly. Therefore, it is important to look at all options before taking a credit card loan. If your credit score is good, other options like personal loans can be cheaper and safer.