In today’s digital age, credit cards have made it easier than ever to make timely payments and manage short-term financial needs. With the added flexibility of converting large purchases into EMIs, credit cards are increasingly becoming a go-to option for many consumers. But when it comes to financing a major expense, a personal loan may offer better structure and longer repayment periods.
So, how do you decide between a credit card and a personal loan? Let’s break it down.
Credit cards provide a revolving line of credit, allowing users to make purchases with the option to repay the amount within a set period—typically interest-free for up to 45-50 days. For larger transactions, credit cards offer the ability to convert payments into Equated Monthly Installments (EMIs).
However, this convenience comes with a cost. Banks usually charge:
Processing fees
Interest on EMIs
Applicable GST on fees
Despite the charges, credit cards are ideal for managing smaller, frequent expenses or emergencies, especially when repayment can be made quickly.
Unlike credit cards, personal loans are typically disbursed as a lump sum and are repaid in fixed EMIs over a predetermined tenure—ranging from 12 months to 60 months or more.
Though the approval process can take a little time (due to documentation and verification), once approved, personal loans come with a structured repayment plan and generally lower interest rates compared to credit card debt.
They’re best suited for:
Large medical bills
Wedding expenses
Home renovation
Debt consolidation
Whether you opt for a credit card or a personal loan, both fall under the category of unsecured loans—meaning no collateral is required. Responsible usage of either option can boost your credit score, while delayed payments can negatively impact it.
Here’s a quick comparison:
| Feature | Credit Card | Personal Loan |
|---|---|---|
| Ideal for | Small, recurring expenses | Large, one-time expenses |
| Approval time | Instant (for pre-approved cards) | May take 1–3 days |
| Repayment mode | Full payment or EMI | Fixed monthly EMI |
| Interest rate | Higher (20–40% annually) | Lower (10–18% annually) |
| Flexibility | High (revolving credit) | Moderate (fixed tenure) |
| Rewards/Cashback | Available | Not available |
Each option has its own advantages. The key is to evaluate your financial needs and choose accordingly:
If you're booking flights, trains, or hotel rooms and want to earn rewards or cashback, a credit card makes sense.
But if you're planning a big purchase or need funds with manageable monthly payments, a personal loan may be more suitable.
Whichever you choose, make sure to compare charges across banks and lenders, read the terms carefully, and avoid borrowing beyond your repayment capacity.
