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| Personal Loan vs. Credit Card: Which Is Better in a Financial Emergency? |
In life, emergencies don’t knock before arriving. A sudden hospital visit, an unexpected house repair, or a last-minute travel plan can come at any time. When such situations arise, having access to quick funds becomes crucial. In India, many people turn to two popular options during these times—personal loans and credit cards. But which one is better in a financial emergency? The answer depends on your specific needs and financial habits. Let's understand both in detail so you can make a smart decision.
Understanding the Basics
A personal loan is an unsecured loan that you can borrow from a bank, NBFC, or online lender. You get a fixed amount credited to your bank account, and then you repay it in equal monthly installments (EMIs) over a set period. Since it’s not tied to any collateral, the approval depends mainly on your credit score and income.
A credit card, on the other hand, is a revolving line of credit. You can use it to make purchases or withdraw cash up to a certain limit. If you pay your dues in full every month, you usually don't pay any interest. But if you delay or pay only the minimum amount, the interest can be quite high.
Speed of Access in Emergencies
When time is critical, how fast you can get the money matters a lot. Credit cards usually win in this case. If you already have a credit card, you can swipe it instantly at the hospital, grocery store, or even book emergency travel online. Some credit cards also allow you to withdraw cash from ATMs, though it often comes with high fees and interest from day one.
Personal loans, while not instant, are becoming faster thanks to digital platforms. If your documents are ready and your credit score is good, many lenders disburse loans within 24 to 48 hours. Some fintech companies even offer instant personal loans in a few minutes. However, if you’re applying for the first time or don’t have a strong credit history, it might take longer.
Interest Rates and Cost of Borrowing
This is where personal loans often have an edge. In India, personal loan interest rates generally start from around 10% per annum and can go up depending on your profile. Since it is a fixed-term loan, the interest rate is decided at the time of approval and remains the same throughout the repayment period.
Credit cards, however, can be more expensive. The interest rates on outstanding balances are usually between 24% to 36% per annum. If you miss your due date or only pay the minimum balance, the debt can quickly pile up. Some people don't realize this until they see the ballooning bill the next month.
If you’re confident about repaying the entire amount within the interest-free period (usually up to 45 days), a credit card can be cost-effective. But for larger expenses or when repayment may take several months, a personal loan is often the cheaper and safer option.
Repayment Flexibility
Credit cards offer a lot of flexibility. You can pay the full amount, the minimum due, or any amount in between. This can be helpful when cash flow is tight. However, this flexibility can also be dangerous. Paying only the minimum keeps you in a debt trap for a long time and increases the interest burden.
Personal loans, in contrast, come with a fixed EMI schedule. This helps in disciplined repayment. You know exactly how much to pay every month and for how long. Many lenders allow you to prepay or foreclose the loan after a few months, sometimes with a small charge, sometimes without any.
If you’re someone who needs structure and doesn’t want to deal with fluctuating dues every month, a personal loan is a better option.
Credit Score Impact
Both credit cards and personal loans affect your CIBIL score, which is very important if you plan to take loans in the future. Timely repayments help build a good score, while delays can hurt it.
Using a credit card wisely by keeping utilization below 30% of your limit and paying dues on time helps improve your score. But if you max out your credit limit and miss payments, it sends a negative signal.
Personal loans, if repaid regularly, show that you can handle long-term credit responsibly. But taking too many loans in a short time or defaulting on EMIs can lower your score.
Loan Amount and Usage
Credit cards are best for smaller, recurring expenses. The limit is usually lower compared to personal loans, especially if you’re new to credit. You may get a credit limit of ₹50,000 to ₹2 lakh depending on your profile. This is useful for grocery shopping, online purchases, or short-term bills.
Personal loans, on the other hand, are better for larger needs. You can get anywhere between ₹50,000 to ₹20 lakh or more based on your income and repayment capacity. This makes it ideal for bigger emergencies like medical surgery, urgent home renovation, or paying off high-interest debts.
Also, credit cards come with usage restrictions. You may not be able to use them everywhere—some small clinics or vendors may accept only UPI or cash. A personal loan puts money directly in your account, and you can use it as you wish.
Eligibility and Approval
Getting a credit card depends on your income, employer, and credit history. If you’re self-employed, a freelancer, or don’t have a stable income, approval might be tough. Also, getting a higher credit limit takes time.
Personal loans have broader eligibility, especially with the rise of digital lenders. Even if you’re self-employed or have a modest income, some NBFCs may still give you a loan. However, your credit score will still play a big role.
Final Thoughts: Which One Should You Choose?
There is no one-size-fits-all answer. If you need money immediately, already have a credit card with available limit, and can repay within a month or so, using the credit card makes sense. But make sure you pay it in full before the due date.
If your need is bigger, more serious, and you need time to repay, a personal loan is usually a better and cheaper choice. The fixed EMIs help you plan your budget, and the lower interest rate saves money in the long run.
Some people also use a mix of both. For example, swipe the card for urgent medicine and food expenses, and then take a personal loan to pay off the card and cover the rest of the emergency costs.
Whatever you choose, always read the terms carefully. Don’t borrow more than you need. And most importantly, repay on time to keep your financial health strong.
Emergencies may be out of your control, but how you handle them financially is in your hands. Stay informed, stay responsible.
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