Credit Card Loan
Credit cards offer more than just the convenience of cashless transactions. Many banks and financial institutions provide the option of a loan against a credit card. If used wisely, this facility can be helpful in emergencies or short term financial needs. But how does it work, and is it really a good idea?
What Is a Loan on a Credit Card?
A loan on a credit card is a pre-approved loan offered by the bank based on your credit limit and usage history. Unlike regular credit card purchases, this loan is converted into easy monthly installments (EMIs), and you don’t need to submit additional documents. It’s a quick and hassle-free borrowing option for cardholders.
How to Get a Loan on a Credit Card?
Here is a step-by-step guide to apply for a credit card loan:
- Check Eligibility
Log in to your net banking or mobile banking app. Banks usually list pre-approved loan offers if you qualify. - Contact Customer Support
You can also call your credit card provider’s helpline and ask about your loan eligibility. - Choose Loan Amount and Tenure
Select the amount you need (within your credit limit) and the repayment tenure typically between 6 to 60 months. - Confirm the Loan Terms
Review the interest rate, processing fee, and monthly EMI details before accepting the offer. - Loan Disbursal
Once approved, the loan amount is either credited to your bank account or adjusted within your credit card account.
Benefits of Taking a Loan on a Credit Card
- No Documentation
Since it’s a pre-approved offer, you don’t need to submit income proof or undergo credit checks. - Instant Disbursal
The loan is approved and processed within hours, making it useful for emergencies. - Flexible Repayment
You can choose the EMI duration that suits your budget. - No Impact on Credit Limit (Sometimes)
Some banks do not reduce your available credit limit when offering a separate loan on your card.
Disadvantages to Consider
- Higher Interest Rates
Compared to personal loans, credit card loans usually have higher interest rates. - Processing Fees
Some banks charge a processing fee, which can add to your cost. - Affects Credit Utilization
If the loan is counted within your credit limit, it can increase your credit utilization ratio and impact your credit score.
Is It Beneficial?
A loan on a credit card is beneficial only when used smartly. It’s ideal for short-term needs like medical emergencies, education fees, or home repairs. However, if you already carry a high credit card balance or are not disciplined with repayments, it may lead to debt accumulation.
Taking a loan on your credit card is a convenient financial tool but comes with risks if not managed properly. Always compare the loan terms with a personal loan or other credit options. If you get a low-interest, no-document loan and can repay on time, it can be a useful option for quick cash.
