Thinking Of Taking A Credit Card Loan? Here Are The Things You Need To Check First
Like other loans, you must understand how it works, what it offers, and how much it may cost you. This knowledge can then help you decide whether or not it suits your needs
Need money urgently but without the hassle of paperwork? A credit card loan can be an easy solution. This is essentially a loan, often pre-approved, offered against your card’s available credit limit and can be availed almost immediately. Like other loans, you must understand how it works, what it offers, and how much it may cost you. This knowledge can then help you decide whether or not it suits your needs. Let’s dive in.
What You Need To Know
- Pre-approved for select customers: Banks usually offer credit card loans to select customers, mainly those with a good credit history. Since customers are selected based on set criteria, the loans are often pre-approved, requiring no separate application or documentation.
- Competitive interest rates: Interest rates on credit card loans vary by lender, ranging from 10.8 per cent to 24 per cent per annum in India. While these rates may be higher than personal loan rates, they are likely to be lower than revolving credit card interest rates, which can go up to 42 per cent per annum.
- Flexible repayment tenure: The repayment tenure for these loans typically ranges from 6 months to 60 months. For example, leading banks like Axis Bank, and State Bank of India (SBI) offer repayment tenures of up to 48 months. Others like Standard Chartered Bank, ICICI Bank, and Kotak Mahindra Bank offer tenures of up to 60 months, making repayments affordable.
- Processing fee: Most lenders charge a processing fee between 1 per cent and 2 per cent of the loan amount, but it may also be higher. For instance, ICICI Bank charges a processing fee of 1 per cent of the loan amount while AU Small Finance Bank, Axis Bank, and SBI charge 2 per cent of the loan amount on their credit card loans.
- Instant loan disbursal: Loans against credit cards are often pre-approved, cutting down the processing time and are disbursed almost instantly. The loan amount is credited directly to your bank account or made available as an increased credit limit.
- Loan amount linked to credit limit: The loan amount offered will depend on your available credit limit. Some banks offer credit card loans of up to 100 per cent of the card limit, while others provide additional loans beyond the limit for eligible customers. For instance, leading banks like Standard Chartered and Kotak Mahindra offer loans against credit cards ranging from Rs 10 lakh to Rs 15 lakh.
- No end-use restrictions: Like personal loans, credit card loans have no restrictions on usage. They can be used for medical emergencies, travel, home renovations, or any other financial needs, except for prohibited activities like gambling.
Are You Eligible For A Credit Card Loan?
Banks assess your eligibility for a credit card loan as well as the loan amount based on several parameters.
- Credit card limit – The maximum loan amount you are offered will depend on your available credit limit and spending pattern.
- Credit score & history – A high credit score (above 750) can increase your chances of getting a higher loan amount.
- Spending habits – Using your card regularly but responsibly can boost your eligibility.
- Repayment history & ability – Banks assess your repayment history to decide on your loan approval and terms.
While personal loans remain a popular financing option, credit card loans are a quick and convenient alternative, especially for smaller or short-term financial needs. However, due diligence is necessary, and you must compare interest rates, fees, and repayment terms across lenders before deciding. Most importantly, borrow responsibly and ensure timely repayment to avoid high-interest debt and maintain a good credit score.
(The author is the CEO of BankBazaar.com. This article has been published as part of a special arrangement with BankBazaar)
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