3 Instances Where A Personal Loan Beats The Use Of A Credit Card

We live in the age of plastic money. Even if you do not have the required amount of cash in your bank for something that you need urgently, it’s easy to pull out a credit card and pay for it. But is this the best option or would a personal loan be better instead?
Using a credit card without making timely repayments can lead you into a debt trap, which will ultimately reflect badly on your Cibil score.Taking a personal loan may prove to be a wiser decision instead. The following are three situations where a personal loan beats the use of a credit card.
A credit card debt trap
With access to easy money on your credit card, it’s easy to fall into the “minimum payment” loop. You do have intentions of paying off the debt in full, but are unable to when the due date arrives. At other times, you may want to spend a certain amount on you card, but some unforeseen expense comes along and you end up spending more than you had budgeted. At such times, it’s better to consider a personal loan. If you take a personal loan, your debt will not be stretched out indefinitely and you will pay a lesser rate of interest too. Further APR (annual percentage rate) on credit card balance is in the range of 36 - 43% compared to a Personal loan which will range from 14 - 18%, which is cheaper.

You do not want to hurt your Cibil score
Let’s say you need to get some renovation work done for your home and your interior decorator says your bill will run up to Rs 80,000. You have the option of paying through your credit card, but if you do, your utilization ratio on the card goes up to 80%. This means you are close to your credit limit on the credit card. A high utilisation ratio has a negative bearing on one’s Cibil report. If you opt for a personal loan instead, which is an EMI based loan and make timely payments, you will have a good score.

Nobody likes nasty surprises!
If you haven’t done your homework while opting for a credit card, you may not know whether the lender is charging you a fixed or a variable rate of interest. In case of changes in the macroeconomic scenario, when interest rates rise, your credit card costs can shoot up considerably. If you have a major expense coming up, it is better to take a personal loan that is offered at a fixed rate of interest. With a fixed interest rate, your EMI remains the same and you do not get any nasty surprises!

As easy as it is to use a credit card, one is likely to fall into a debt trap rather unwittingly. Before you use your credit card for any major expense, weigh your options and consider whether taking a personal loan will be better or not.

Rajiv Raj is the Director and Co-Founder of www.creditvidya.com
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