Credit card loan vs SBI personal loan-Which to take when in urgent need of funds

Financial emergencies can arise at any time and cause us to experience financial deficits, which we can overcome with the help of a suitable credit option that allows for the rapid disbursement of sufficient funds. Given that it is one of the quickest and most popular loan options for meeting urgent monetary obligations, along with the useful tool SBI Personal Loan EMI Calculator, a personal loan is likely to be the first alternative that springs to mind in such situations. 

People who own credit cards, on the other hand, have an additional credit option available to them in the form of a loan against a credit card, which they may choose to use due to the fact that its features are more or less identical to those of personal loans apart from higher rates than SBI Personal loan Interest rates.

As a result, below is a comparative analysis of each of these loan choices to assist you in making your decision for choosing between the two:

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The eligibility criterion for a loan

When granting a personal loan approval, lenders consider a variety of factors, including the borrower’s credit score, monthly income, employment and employer profile, and so on. On the other hand, when it comes to loans secured by credit cards, card issuers sanction the pre-approved loan to selected cardholders mostly on the basis of their card type, spending habit and bill repaying history. 

While borrowers must have an existing relationship with the card issuer in order to qualify for a loan against a credit card, there is no such requirement for borrowers to have an existing relationship with the lender in order to qualify for a personal loan. But before hopping onto the decision to take a personal loan, remember to check your EMI affordability by using SBI Personal Loan EMI Calculator.

Applicable interest rate

SBI Personal loan Interest rates usually depend on the lender and the borrower’s credit history. Interest rates on credit card loans are typically 1% higher than those on personal loans. So, if you are able to wait for the loan disbursement for at least 2-3 days or more, it would be advisable to take out a personal loan due to their lower SBI Personal loan Interest rates than credit card loans.

Processing times and other fees

Loans against credit cards have one of the shortest processing times, with disbursement typically taking place within a few hours of the loan application being submitted. Loans against credit cards are pre-approved, which eliminates the requirement for physical proof for qualifying credit cardholders who already have credit cards in their possession. Some card issuers also claim that these loans are disbursed immediately within a few seconds. If a credit card user is eligible for a loan, he or she merely needs to submit an online application through internet banking or call customer service to apply for one. Processing fees associated with credit card loans might amount to as much as 1-2.5% of the loan amount.

When it comes to personal loans, applicants are expected to present supporting documentation such as payslips, income tax return forms, and KYC documents in order for their loan to be processed and approved. Because the document verification process takes time, personal loans are typically disbursed within 2-7 days of submitting the loan application. Processing fees can amount to around 1- 3 percent of the loan amount, which is frequently waived by many lenders during festive seasons or as a limited-time offer during certain times of the year to boost demand.

Amount of the loan

It is possible to obtain a loan against a credit card up to the predetermined loan limit sanctioned by the card issuer. Although the cardholder’s credit limit is temporarily restricted to the amount of the sanctioned loan, this can have a negative impact on his or her ability to spend on that card, and the credit limit eventually becomes available as and when the borrower continues to make payments on the loan’s EMIs. Some credit card issuers have even gone so far as to offer credit card loans that are in excess of the credit limit permitted on the card in question. 

While personal loans typically range between Rs 50,000 and Rs 20 lakh, certain lenders claim to be able to grant loans of up to Rs 40 lakhs, which is more than the average range. Keep in mind that, in the event of a personal loan, the sanctioned loan amount would be determined primarily by factors such as the borrower’s ability to repay the loan checked on SBI Personal Loan EMI Calculator and the loan period selected.

Tenure for loan

The majority of lenders offer personal loans with tenors ranging from one to five years in length, with some lenders offering terms as long as six to seven years in duration. Loans against credit cards, on the other hand, have repayment terms that typically range between 6 months and 5 years. 

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When deciding between these two loan options after taking into consideration offered SBI Personal loan Interest rates, those who expect to complete the loan repaying schedule within a year should go for the credit card loan instead of the personal loan. While a shorter loan term will result in overall interest cost savings for the borrower, it will also result in a larger EMI amount which you can check on SBI Personal Loan EMI Calculator. Therefore, when choosing the loan term, make sure that you do not sacrifice contributions to important financial goals in the process of finalising shorter tenure.

Charges for prepayment

In some cases, lenders may impose prepayment penalties as high as 5 percent on personal loans, depending on the lender’s policies. Prepayment is not penalised by banks, especially public sector banks, because their personal loans are typically issued at floating SBI Personal loan Interest rates, as opposed to fixed interest rates. It’s important to remember that, according to RBI standards, banks are not permitted to punish borrowers who prepay retail loans with fluctuating interest rates.

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