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Is getting a loan against your credit card a good idea?



credit card

Need urgent funds and cannot wait for loan approval and processing by a bank? Your credit card is the solution. You can take out a loan against credit card within seconds. A loan on a credit card is the quickest way to access urgent funds to meet the sudden financial requirements.

There is a remarkable shift in customer preferences for credit card usage as these offer convenience and hassle-free credit during troubling times. 

A loan on a credit card is a pre-approved loan offered to their credit card clients by the banks. Customers, who do not have savings accounts with the lending bank but with another bank, can receive funds in the account via NEFT. The credit card loan amount depends on the credit limit on your card. Generally, the loan amount against a credit card is higher than the credit card cash withdrawal limit. 

Credit Card Loan Features

The credit card loan features include:

  • Fastest documentation process: There is zero paperwork to quicken the process. Access funds without any document submission. A credit card is already a credit line issued by the bank after your account, credit score, income and document verification. Therefore, you need not submit additional documents.
  • Flexible Repayment Tenure: The repayment tenure is flexible – 6-48 months. It is better to apply for a short term loan against a credit card to reduce the credit cost.
  • Attractive Interest Rates: These loans are available at attractive interest rates to reduce your debt burden. The bank may charge interest as per your tenure and risk on repayment capacity based on your income and creditworthiness.
  • Loan Amount: The credit card holder can meet financial obligations with a loan of up to 5 lakhs. Again, the loan amount is subject to your annual income and repayment history.

Is it a good option to avail of a credit card loan?

An option that can provide you with the fastest credit seems like a go-to option for borrowers. New users are especially prone to making mistakes when using credit cards. It is a good option if you know a few aspects concerning credit card loans. Here are the important elements: 

  • Apply for a short term loan 

If you are looking to take a loan for a long time, a credit card loan can cost you heavily. On credit cards, you usually get loans at a rate of more than 12-15%. A long tenure may increase the interest rate accordingly. In contrast, short term tenure may reduce your credit card EMI interest rate.

  • Repay the loan on time

Credit cards come with interest and fees to be paid by the cardholder. Make sure you pay each EMI on time to avoid additional interest. Late credit card loan repayment may lead to heavy fees and interest.

  • Paying only the minimum due is only for the financial crisis instances. 

Credit card companies offer revolving credit facilities. The borrower can pay only the minimum due and pay the balance amount before the following bill statement. But the outstanding amount will attract interest that can go up to 24% annually. Then, it will become an expensive debt. 

  • Do not make further purchases if your credit card has an outstanding balance.

When your card carries an outstanding balance after the due date, the facility of an interest-free period on the bill is not offered on further spending using the credit card. Any additional spending when there is an outstanding balance, the interest will be charged from day one of purchase. It may end up paying huge interest. The credit card holder needs to control expenses. Spend what you can pay comfortably and repay the loan EMI and bill in full at the end of the month. Missed EMI payments can attract interest @ 15-18%.

  • Utilising the full limit of a credit card is not a viable option.

A credit card offers the user to spend freely and repay it later. What an informed credit card user does is keep the credit utilisation low. You should not use a large portion of the allocated credit limit on the card. It impacts the credit score negatively. With a high credit utilisation ratio, you may not access additional credit facilities at affordable costs. You can hold more than one card to spread this ratio over various cards with high credit limits. Make sure you don’t exhaust more than 30% of the credit limit.

Eligibility for Credit Card Loans

A credit card holder with a good track record of bill payments can apply for a credit card loan on time. The bank considers your credit card spending, transaction pattern, and payment history for loan approval on a credit card, depending on the bank’s policies.

Also Read: Here Are Five Tips to Help You Make the Most of Your Credit Card

How to Avail Credit Card Loans?

Through Net Banking 

  • Visit the official website of the bank. 
  • Access the ‘Net Banking’ using your user ID and password. If you do not have the net banking password, generate it online.
  • Now you can choose the ‘Loan on Card’ option.

Through Mobile Banking

  • Download the bank’s Mobile Banking application.
  • Log in to the Mobile Banking app 
  • Choose the Loan on Credit Card.

This way a credit cardholder can access a quick and hassle-free loan against a credit card online.