When you suddenly need money, two options immediately come to mind: credit cards and personal loans. Both are unsecured loans, meaning no collateral is required. This is why they are considered lifesavers in difficult times. But the question is, in what situations is a credit card the right choice, and when is it wiser to take out a personal loan? Understanding this is crucial because the wrong choice can lead to significant problems. Here's what you need to know:

Credit Card: The Convenience of Repeated Borrowing

The biggest advantage of a credit card is the reusable limit. This means you spend with the card, pay the bill, and the same limit becomes available again. This is not the case with personal loans. Once you've repaid a loan, if you need another one, you have to apply again. At that time, your CIBIL score, income, and profile are checked again. Taking out personal loans repeatedly can also negatively impact your credit score.

No Grace Period with Personal Loans

Credit cards are also popular because they offer a grace period. If you pay the full bill within this stipulated time, you don't have to pay any interest. However, as soon as the grace period ends, the interest rate becomes quite high. There is no such option with personal loans. As soon as you take out the loan, you have to start paying EMI + interest from the following month.

Being a Bank Customer is Not Necessary for a Credit Card
To get a credit card, it's not necessary to have an account with that bank. However, for a personal loan, a bank account, salary slips, income proof, and KYC documents are required. The credit card application process is usually easier and faster.

Rewards and Cashback: A Big Plus Point of Credit Cards
Spending with a credit card gives you benefits like reward points, cashback, discounts, and gift vouchers. Personal loans don't offer any such benefits. There, it's just the loan and its EMI.

Loan Closure Rules are Also Different
You can pay off your credit card balance in full during the grace period or convert it into EMIs, although EMI conversion may incur processing fees, GST, and prepayment charges. With personal loans, most banks charge a prepayment penalty if you want to close the loan before the agreed-upon time.

Which option should you choose and when?
If you need a small amount of money for a short period, a credit card is a better option. But if the amount is large and it's difficult to repay it immediately, taking a personal loan would be wiser.

If you take a large amount using a credit card and fail to pay on time, the high interest rate can trap you in a debt cycle. On the other hand, personal loans offer longer repayment periods, smaller EMIs (Equated Monthly Installments), and easier repayment terms.

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