Aryan needed funds to renovate his apartment, while Riya wanted to plan a dream vacation. With the importance of personal loans and credit cards looming over them, they started their journey to understand which financial option suited their needs better.
Credit cards and personal loans both are crucial financial products that play an imperative role in the contemporary world. A personal loan if availed through ICICI personal loan or any other financial institution offers a lump sum proceed that must be paid back within an agreed upon repayment period along with interest constituent. In contrast, a credit card option serves as a credit line that permits you as a user to buy on credit, which must be paid back within the billing period.
Exploring the benefits
Benefits of personal loans
Large fund access
A substantial amount can be borrowed through personal loans, making them ideal for major expenses like home renovations or medical emergencies.
Lower interest rates
In comparison to credit cards, personal loans offer lower rates. So, if you are looking to avail an ICICI personal loan, then you can get it at lower ICICI personal loan interest rates.
Fixed interest rates
Personal loans usually come with fixed interest rates, providing predictability in monthly payments.
Structured repayment
The loan tenure and monthly instalments are predetermined, aiding effective financial planning.
Consolidation of debt
Personal loans can be used to consolidate high-interest debts into a single, more manageable payment.
No collateral needed
Many personal loans are unsecured, requiring no collateral or assets to be pledged.
Boosts credit score
Timely repayment of personal loans positively impacts credit scores, enhancing future borrowing potential.
Quick disbursal
With streamlined processes, personal loans like ICICI personal loans ensure swift fund disbursal.
Flexible usage
Personal loans have versatile applications, from funding weddings to covering educational expenses.
Fixed tenure
Borrowers have a fixed repayment period, preventing debt from lingering indefinitely.
Benefits of credit cards –
Rewards programs
Many credit cards provide rewards, cashback, and discounts on various transactions.
Emergency funds
Credit cards can act as a financial safety net during unexpected expenses.
Credit building
Responsible credit card usage can improve credit scores, aiding future loan approvals.
Online transactions
Credit cards facilitate online purchases, making them essential in the digital age.
Part-payments
Cardholders have the flexibility to make partial payments if unable to clear the full balance.
Travel benefits
Certain credit cards offer travel-related perks like airport lounge access and travel insurance.
No preapproval needed
Unlike loans, credit cards don’t require preapproval before use, providing immediate access to credit.
Balance transfers
Cardholders can transfer high-interest balances to a card with lower rates, reducing overall interest payments.
Distinguishing differences –
Nature
Personal loans offer lump sum proceeds. However, credit cards provide revolving credit lines. These proceeds can be utilised for reasons such as medical expenditures, home renovation, or education costs payments.
In contrast, a credit card provides a revolving line of credit that allows the cardholder to borrow varying amounts within a predetermined credit limit. This line of credit can be used repeatedly if the total borrowed amount doesn’t exceed the credit limit. Unlike a personal loan, where the entire amount is disbursed upfront, a credit card provides ongoing access to funds, offering greater flexibility in managing smaller, recurring expenses.
Repayment structure
Personal loans have fixed repayment schedules; credit cards have monthly minimums with varying payment options. Personal loans follow a structured repayment schedule, typically involving fixed monthly instalments. Borrowers know the exact amount they need to repay each month, making financial planning easier. These instalments include both principal and interest components, with a clear timeline for full repayment.
Credit cards have a more dynamic repayment structure. While there is minimal payment required every month, as a card user, you have complete flexibility to repay just the minimal or higher amount. But if the full balance is not repaid on time, the rest balance accrues an interest of up to 52 per cent per annum. This flexibility can be advantageous but requires careful management to avoid accumulating high-interest debt.
Collateral
Personal loans, like the ICICI personal loan, don’t require collateral and are granted based on the borrower’s creditworthiness. In contrast, credit cards are unsecured financial products. They need no security, and their approval is done depending on the card user’s income and credit history. As credit cards by nature are unsecured, their rate of interest is usually higher to make up for the enhanced risk to the issuer.
Credit limit
Personal loans have a fixed borrowing limit; credit card limits are revolving and can change. Personal loans provide a fixed borrowing limit, decided at the approval time. This limit depends on parameters like the borrower’s credit profile, repayment potential and income. The borrower gets the approved proceeds in lump sum form, which must be repaid over the agreed-upon loan repayment tenure.
Credit card limits, on the other hand, are revolving. The credit limit indicates the maximum amount a cardholder can borrow on the card. This limit can change over time, either increasing or decreasing based on the cardholder’s credit behaviour and the issuer’s evaluation. The revolving nature of credit limits offers more flexibility for cardholders to manage varying expenses, but it requires responsible credit usage to avoid exceeding the limit.
Decision –
After careful consideration, Aryan opted for an ICICI personal loan due to its predictable repayment structure and lower interest rates. Riya, looking for more flexibility, chose a credit card to fund her vacation, leveraging its rewards and convenient usage.
Aryan and Riya as ventured through the financial products soon realised that understanding the nuances attached to credit cards and personal loans is essential. Each financial product comes with its own set of benefits tailored to meet a specific purpose. Their journey through both verticals taught them about the significance of making an informed decision and securing their future stability. In the end, the choice between a credit card or a personal loan depends on individual financial goals and individual circumstances.
Singh is an experienced spiritual writer and the resident author at Guruvanee.com. With a deep passion for exploring the mystical aspects of life, Singh delves into various spiritual traditions, philosophies, and practices to inspire readers on their spiritual journeys.