How Personal Loans are more beneficial than credit cards?

If you are about to make a big purchase, chances are that will likely go for two prominent financial instruments – Personal Loans and Credit cards. People widely use both these financial instruments to finance their purchases.

Taking a personal loan requires more effort than swiping a card, as you have to apply and get it. However, it is a sound financial decision to opt for a personal loan than a credit card in such situations. Here are some of the reasons why a Personal Loan has the edge over credit cards.

Lower Interest rates

Whenever we borrow money to fund a purchase, we want to settle that amount with the lowest possible interest amount. With Personal Loans, you have an option to choose a bank that offers a low-interest rate. Currently, the Indian Loan market is brimming with several personal loan deals, with HDFC and ICICI offering loans at a relatively cheap interest rate of 10.25%. Moreover, if you have a high credit score and a good relationship with the lender, you can negotiate better terms.

In the case of credit cards, the interest rates are fixed, and there’s no chance to negotiate for a lower interest rate. Though most credit card providers provide an interest-free period specified to specific days when issuing the card, it’s not a cost-effective option. Going for a personal loan is a much better choice in such circumstances.

Bigger Loan Amount

Most Personal Loan lenders let you avail yourself of a loan amount of up to 30 times your monthly income. Thus you get access to bigger funds with a personal loan. In India, banks and NBFCs offer a personal loan amount of up to 25 Lakhs to eligible borrowers. It is highly unlikely that you’d get access to this much funds with credit cards.

Long Tenure

A personal loan comes with a relatively long tenure. For example, most banks offer up to 5 years to repay a personal loan. Whereas in the case of credit cards, except for the interest-free period, in the beginning, your purchases entail interest over the period, and your debts would keep adding up. Your choice of personal loan could cost you much less than repaying credit card bills.

Better Financial Management

Personal Loans mostly come with fixed interest rates, though a tiny fraction of lenders offers it at a floating interest rate. Going for a fixed rate personal loan will give you an idea about your repayment every month and when exactly your loan tenure will end. This way, you can plan your monthly budget in a much more effective way. On the other hand, a credit card allows you to make a minimal payment for your purchase and continue charging more on balance. As a borrower, you will find it very difficult to track your repayment progress.

So, if you are planning for a more significant purchase, Personal Loans are the best financial tool to use than swiping the card.