Both a personal loan and a credit card come to your rescue when you face a cash crunch, but there are certain instances when you may be able to serve your needs better with a personal loan.

A personal loan and a credit card are both unsecured loans that do not require any asset as collateral. As such they are associated with a higher interest rate, though they both come to your rescue when you are facing a cash crunch. They can both be used during a medical emergency or for funding education, for wedding expenses or even for travelling on a well-deserved break.

However, it is always wise to follow a disciplined approach to borrowing money and this is why a personal loan is sometimes a more efficient medium of funding yourself when you need financial help.

Swiping your credit card will help you when you are short on cash; however, repayment of the borrowed amount is not as structured as it is in a personal loan. People generally assume that paying the minimum amount due on your credit card bill is enough but a little analysis will help you realise that paying the minimum amount does not help reducing the principal amount and that the interest gets accrued on the outstanding amount on a monthly basis.

A personal loan, on the other hand, is more organised and you are aware that a fixed amount will be paid towards your loan amount every month, and in a due course your outstanding will be paid off entirely. Depending on your credit score and your salary bracket you can get a lower interest rate than most credit cards.

A credit card is a great tool too, and can be swiped immediately. Concurrently, it also offers many benefits like bonus points, reward programs and discounts but there are instances when a personal loan is a more viable option than a credit card. Here are a few instances where a personal loan is a better option than a credit card.

Medical bills

While swiping your credit card for a blood examination seems like a good option, using it for a heart surgery is not a great idea unless you can repay the entire amount at once. Credit cards charge a high interest rate; for e.g., 1.99% to about 3.5% monthly, which means 27% to 51% yearly CAGR. Interest rates on a personal loan on the other hand start as low as 12% going up to 16%, which is clearly less than a credit card.

Refinance your existing debts

If you are debt ridden and have accumulated a huge debt on your credit card, then transferring your outstanding balance and availing a personal loan is a very good option. This will not only help you pay off your debt in a structured manner, but will also help you to slowly build up your credit score.

Major event expenditures

Marriage and other major events incur huge monetary expenses. You may take a personal loan as per your budget and choose a comfortable tenure to repay the same. Tenure for personal loan usually starts from 24 months to 60 months, thus not burdening the borrower.

Business requirements

Whether you want to start a new venture or need extra funds to expand your business, personal loans can help you realise your dreams. By getting online approval, which does not take too much time or effort, you will be able to complete the loan formalities without taking too much time away from your work. The quick disbursal of personal loans is also helpful in fuelling your business.

For further education

A personal loan is a great tool if you have to pay course fees for your children in India or abroad or pursue further studies or get certifications yourself. You may take a loan of the exact amount and repay it as per your convenience.

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