Having a credit card have lots of advantages and most people get a credit card as soon as they become eligible for it. You borrow money from your card issuer and pay it back later. These cards are accepted almost everywhere today, but there are still some transactions that you can’t make using your credit card and even if you do, you have to pay high charges for that. An example of such a transaction is a cash advance. If you want to borrow money in the form of cash or you have to transfer that money to someone else, credit cards might not seem to be so helpful in such cases. Many people prefer applying for a personal loan in such situations, which includes a lengthy application & documentation process, and there is no guarantee whether your application will be approved or not. But, you should be aware of the fact that credit cards can help you in these situations as well. You can take a loan against a credit card, which is far easier to get than a personal loan if your credit profile is in good standing. To know more about what is a loan against a credit card and its benefits, go through the complete article:
What is A Loan Against Credit Card?
A loan against a credit card is also a type of personal loan against your Credit limit that you can take when you are in urgent need of funds. These loans are instant and are disbursed to your account in no time with minimal documentation, unlike other personal loans. In emergency situations, people often opt for cash withdrawal using their credit card, but taking a personal loan against a credit card is a better option. It is because the interest rates are high on cash withdrawal and the amount is limited, but you might get a loan up to your credit limit (or even more) against your credit card and the interest charges on it are the same as that of the other personal loans.
Benefits Of A Loan Against A Credit Card
- If your credit card account is in good standing, you can get approved instantly for a loan against a credit card. It needs very less documentation or no documentation at all and you receive the money in your account instantly.
- You can easily repay your loan in Easy Monthly Installments (EMIs), which makes the repayment process very easy.
- The interest on the loans against credit cards is similar to that of personal loans, but the interest on credit card cash advances is very high. So, you should consider having a loan against a credit card when you need cash instead of withdrawing cash using your credit card.
- You can get flexible tenures of up to 24 months to repay your loan against a credit card and pay it in easy monthly installments rather than having the burden of paying it all at once.
Things To Know About Loan Against a Credit Card
You Must Have a Good Credit History
Getting a loan against a credit card is very easy but you should have a good Credit history for it. If your payment behavior is not good, it will affect your credit history and hence your card issuer might consider you as a risky borrower. As a result of this, there are chances that your loan application will either be rejected or you will not get a loan amount of your choice but less than that.
Missing/Delaying Your Loan EMIs Affects Your Credit Score
If you take a loan against a credit card, you should make sure to repay the EMIs on or before the due date. It is because the missed/delayed payments are counted as missed loan payments, which affects your credit score more badly than a normal credit card payment does.
Interest Rate on Loan
The interest charges on a loan against a credit card are the same as interest charges on other personal loans, which are around 12% to 24% per annum generally. Some people wrongly assume that the interest on a loan against a credit card will be as high as cash advances, which is not true. So, instead of withdrawing cash using your credit card, you must prefer getting a personal loan against it when you are in urgent need of cash.
Effect on The Credit Limit
When you take a personal loan against a credit card, your credit limit decreases until you repay it. For example, if you have taken a loan with monthly installments of Rs. 10,000 for 1 year, your credit limit will be considered as Rs. 10k less than your actual credit limit until you pay all your EMIs, i.e, for the next one year.
Interest on the Remaining Credit limit
The interest charges on your remaining credit limit will be the same as mentioned on your credit card’s most important terms and conditions and not as the charges on your loan against the credit card. So, if the interest on your loan is 21% per annum and that on the credit card is 43% per annum, the interest on all your transactions other than the loan EMIs will be charged as 43% per annum.
A loan against a credit card can be a lifesaver for you in emergency situations. You might have also done the mistake of withdrawing cash using your credit card when you urgently need funds, but now you must understand that getting a loan against your credit card is a better option. Not only because of cash advance charges, but also due to the cash advance limit, which allows you to withdraw only a limited amount. But in the case of a loan against your credit card, you can get any loan amount up to your credit limit, provided that your payment history is decent and you don’t default payments very often. Unlike the other personal loans, the loan against your credit card is disbursed in minutes, and that too without a lengthy documentation process. So, it is highly advisable for you to go with a loan against a credit card rather than availing of the Cash advance facility.