Getting an instant personal loan is a cumbersome process as in most cases banks ask for several documents which takes too much time to get the money in hand. But, a loan on credit card is an instant way to get a personal loan on credit card. Unlike other personal loans, loans on credit cards don’t need any additional documents to get approval. So, this is one of the best possible solutions for taking a personal loan.
What is the loan on a credit card?
The loan on a credit card is a pre-approved, paperless, instant personal loan that a credit card holder can get against his/her credit card limit. Most credit card holder think that the card providers increase credit card limit on their card when they grant a loan, but this is not the case. One gets the loan on their total credit limit.
This kind of unsecured loan is the best option for those who need instant cash to deal with some emergency, and it is far better than credit card cash withdrawal as in cash withdrawal you will have to pay a higher interest rate and credit card cash withdrawal charges. That’s why this type of loan is much more beneficial than cash withdrawal.
How can I get a loan against my credit card?
Loan against a credit card is an unsecured loan that means you don’t need to provide any security for it and the loan amount will be credited against your total credit limit. The application process is very simple. There are two methods for applying for the loan:
- Through online: The online method is very simple, you just need to log in to your net banking or mobile banking account, provide some necessary details like your credit card number, savings account details, etc. And submit your application. The loan amount will be credited to your savings account.
If you are an Axis Bank credit card user and want to get a loan against your axis my zone credit card then you should visit our Axis Bank FAQs page to get more detailed instructions.
2. Through offline: You can also apply offline if you are not comfortable with the online method. You just need to visit the nearby branch of your card provider and talk to the credit card executive; he/she will guide you through the process.
Who can apply for a loan against a credit card?
You are eligible for a loan against a credit card if you have a credit card and a good credit score. Most of the card providers offer this feature for all of their customers (existing + new). But there are some card providers like HDFC who offer the hdfc credit card loan feature for their existing customers.
You have to fulfill these basic eligibility criteria to get the loan:
- The applicant should have a good credit score and a clean credit history. And since it is an unsecured loan, having a good credit score is necessary.
- A customer with a higher income is the most eligible for such loans. If you have a higher source of income, you can upgrade your credit to a higher category. And you can get a much higher loan amount. For instance, if you upgrade your credit card to the hdfc infinia credit card you can apply for a much higher loan amount.
- And last but not least the applicant should be a credit cardholder.
Also, you can check your eligibility for credit card loans in several ways, through phone banking, net banking, or just by visiting the branch. The maximum loan amount you can get depends on your credit limit, your monthly income, and your credit score.
What are the charges applicable on loans against credit card?
Loan against a credit card interest rate normally ranges between 12% – 20%/year which is a bit higher than the regular loan interest rates. The interest rate may vary depending on the credit card type, your credit history, tenure, loan amount, etc.
If your taken loan amount is higher than your cash withdrawal limit, then there is a good chance that your card provider will temporarily block the cash withdrawal facility on your card. So you should check your credit card balance before getting a loan.
What are the advantages and disadvantages of a loan against a credit card?
Everything has its advantages and disadvantages and it is also true for loans against credit cards. So let’s talk about the pros and cons of the feature.
The advantages of credit card loans:
The loan against a credit card is meant for emergencies. There are several benefits of this facility that makes it the best option for emergencies –
- It is an instant loan, you can get this loan instantly, whenever you need it, even if you don’t need to provide any documents. Also if you apply online, the built-in calculator will automatically calculate your total payable amount, monthly installments, and the applicable interest depending on your loan amount and the selected tenure.
For instance, if you apply for an icici credit card loan via net banking or mobile banking, the credit card loan calculator will instantly calculate the applicable icici credit card interest rate, your total payable amount, and the monthly installments which you need to pay.
- This feature is much more beneficial than cash withdrawal, as in this way the interest rate is much lower, and you can get a higher amount than cash withdrawal using a credit card. You will also be charged a lower processing fee.
- You can apply for a credit card loan online/offline or with just a phone call to your credit card provider. It also offers fast processing and quick approval of the loan that makes it ideal for emergencies. You can find the contact details of your card provider from our credit card customer care page.
- You can pay back the loan amount in easy monthly installments. You can get a maximum tenure of upto 24 months.
The disadvantages of credit card loans:
Along with several benefits, this also has several drawbacks. And you should be careful about them before getting a loan against a credit card.
- The credit card loan interest rate is much higher than other personal loans which are not at all a good financial decision.
- If you apply for a much higher loan amount, the card provider may temporarily block your credit card for further use.
- Every credit card holder is not eligible for this loan, your eligibility for credit card loans depends on several things.
The loan against a credit card is only best for emergencies. So, use it only when you don’t have any other option available
Things to be careful about loan against credit cards :
There are several things you should keep in mind before applying for a loan against a credit card.
- The chance of getting a loan depends on your credit history: A clean credit history makes it much easier for you to get the loan. On the other hand, if you have a bad or no credit history you may not be able to get a loan. Having a premium credit card also enhances the chance of getting a decent loan amount, for instance, if you have the sbi prime credit card or other premium credit cards it will be much easier for you to get a loan.
- Try to avoid making defaults: Defaults on loan repayment can affect your credit score much more than the default made on credit card repayments can do. So, try to pay the installments of your loan within the due date. This is because if you make a default on a loan against credit card repayment, it will be considered as a loan default and not a credit card default. You can use a credit card payment app to make things easier for you.
- Flexible tenure option: Most credit card companies offer flexible tenure options for their customers. So, choose a repayment period that is most suitable for you. The maximum tenure you can get is 24 months, but some card providers offer tenure options over 24 months. For instance, if you get a loan against your hdfc millenia credit card, you will get a repayment period of up to 60 months, so chose wisely as always remember that as much time you will take to repay more you will have to pay as the interest rate.
- Credit limit: There is a myth that the credit card provider increases your credit limit before granting a loan. But this is not true, the loan amount will be credited against your existing credit limit, and you can use the rest of it for your credit card transactions.
Suppose you have a credit limit of Rs. 100,000 on your sbi platinum credit card and you have taken a sbi credit card loan of Rs. 50,000. Then you will have Rs. 50,000 sbi credit card limit available in your hand to perform everyday credit card transactions. You can check how much credit limit you have in your hand from the credit card balance check option in your net banking or mobile banking account.
- Pre-closer option: You can pre-close your loan anytime you want. But you will have to pay some pre-closure charges set by the card provider. But before pre-closing your loan talk to a financial adviser to know if it is worth pre-closing the loan or not.
- Applicable charges: The processing fee of loans against credit cards range between 1% and 6% of your loan amount. There are also other charges involved with the loan amount, so you should read the terms and conditions before applying.
If you are applying for an hdfc credit card loan, then you can find the applicable hdfc credit card interest rate and other details of the loan here.
In conclusion, I can say that this feature is very useful for emergencies, especially when you need instant cash. Otherwise, it is much more expensive than regular personal loans and you should avoid it until there are no other options available.