Having a credit card has 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 and documentation process, and there is no guarantee that 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.
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What is A Loan Against Credit Card?
A loan against a credit card is a personal loan that a cardholder can secure based on their credit limit. When a user is in urgent need of funds, instead of opting for a personal loan that usually requires extensive documentation and approval time, you can quickly apply for a loan against your credit card. This type of loan provides you with instant access to cash with minimal paperwork.
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 withdrawals 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 those of other personal loans.
Benefits Of A Loan Against A Credit Card
- If your credit card account is in good standing, you can get a loan approved almost instantly.
- You can easily repay your loan through 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 secure a tenure of up to 24 months to repay your loan against a credit card and pay it in easy monthly installments, rather than having to pay it all at once.
Things To Know About a Loan Against a Credit Card
A Good Credit History is Required
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 a risky borrower. As a result, there is a chance that your loan application will be rejected or you may not receive the loan amount of your choice, but rather a lesser amount.
Missing Your Loan EMIs Negatively Impacts the 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 missed or delayed payments are counted as missed loan payments, which negatively affects your credit score more 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 generally around 12% to 24% per annum. Some people mistakenly assume that the interest on a loan against a credit card will be as high as the interest on cash advances, which is not true. So, instead of withdrawing cash using your credit card, you should prefer getting a personal loan against it when you are in urgent need of cash.
Effect on 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 ₹10,000 for 1 year, your credit limit will be considered as ₹10,000 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 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 at 43% per annum.
Bottom Line
A loan against a credit card can be a lifesaver in emergency situations. If you have ever made the mistake of withdrawing cash using your credit card when you urgently needed funds, it’s important to understand that getting a loan against your credit card is a better option. This is not only because of the cash advance charges but also due to the cash advance limit, which restricts you to withdrawing only a limited amount.
A loan against your credit card allows you to borrow up to your credit limit, as long as your payment history is decent and you do not frequently default on payments. Unlike other personal loans, a loan against your credit card can be disbursed in minutes and does not require a lengthy documentation process. It is highly advisable to opt for a loan against your credit card rather than using the cash advance facility.
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