Personal Loan vs. Credit Card: Which is Right for You
When deciding between a personal loan and a credit card, it's essential to consider your financial needs, repayment capacity, and the nature of the expense. Here's a detailed comparison to help you make an informed choice:
🆚 Personal Loan vs. Credit Card: A Comparative Overview
1. Purpose of Use
Personal Loan: Ideal for significant, one-time expenses such as home renovations, medical bills, or debt consolidation.
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Credit Card: Best suited for everyday purchases like groceries, gas, or online shopping.
2. Loan Amount
Personal Loan: Offers larger loan amounts, typically ranging from ₹50,000 to ₹25 lakhs, depending on the lender and your eligibility.
Credit Card: Provides a revolving credit limit, which can vary based on your creditworthiness.
3. Interest Rates
Personal Loan: Generally has lower interest rates, ranging from 10% to 24% per annum, with fixed rates for the loan tenure.
Credit Card: Tends to have higher interest rates, often between 24% and 48% per annum, with variable rates.
4. Repayment Structure
Personal Loan: Fixed monthly installments over a predetermined period, providing predictable repayment schedules.
Credit Card: Minimum monthly payments, typically 2% to 5% of the outstanding balance, with the option to carry forward balances (revolving credit).
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5. Fees and Charges
Personal Loan: May include processing fees, prepayment penalties, and late payment charges.
Credit Card: Can incur annual fees, late payment fees, cash advance fees, and foreign transaction fees.
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6. Credit Impact
Personal Loan: Timely repayments can positively impact your credit score by demonstrating responsible borrowing behavior.
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Credit Card: Responsible usage, such as paying the full balance on time, can also boost your credit score.
🧠When to Choose a Personal Loan
Large, One-Time Expenses: For significant purchases or emergencies requi