Easy Way To Take A Loan Against Your Credit Card

When you need funds urgently, getting a loan against your credit card can be a quick and convenient solution. In India, many people find that this method allows them to meet immediate financial needs without the long processes associated with traditional personal loans. 

Credit card issuers in the country are recognising this demand and are increasingly offering this facility to their cardholders, making it easier to access financial relief. 

This article explains how to get a loan against a credit card in India. We will discuss the benefits of this method, explain the application process step by step, and highlight key considerations to keep in mind before proceeding. Whether you're facing unexpected expenses or need quick cash for an urgent project, understanding how to use your credit card for a loan could be the solution to your financial dilemma.

Coverings

• What is a loan on a credit card, and how does it work?
• What are the benefits of taking a loan against a credit card?
• Factors to consider before taking a loan against a credit card
• How to Take a Loan Against a Credit Card?

What is a loan on a credit card, and how does it work?

A loan on a credit card, also sometimes called a credit card advance, is basically a short-term loan you can take out using your available credit limit on the card. It's different from using your credit card for regular purchases in a few ways:

1. Pre-approval: Many banks offer these loans as pre-approved options for existing cardholders with a good credit history. This means you might not need to fill out a lengthy application and wait for approval. Instead, you may be able to apply for the loan online or through your bank's mobile app and receive the funds quickly.
2. Disbursement: The loan amount is typically deposited into your bank account, not credited to your credit card itself. This gives you more flexibility in how you use the funds, as you're not limited to making purchases with the credit card itself.
3. Repayment: You repay the loan in instalments, usually over a fixed term, just like a regular loan. An interest rate will be charged on the loan amount, which can be quite high compared to other loan options. Be sure to factor in the interest rate when considering whether a credit card loan is the right option for you.

What are the benefits of taking a loan against a credit card?

Taking a loan against a credit card has several benefits, especially when you're in urgent need of funds. Here are the key advantages:

1. Quick Access to Funds: One of the most significant benefits is the speed of access to funds. Many credit card issuers offer pre-approved loans to their customers, which means you can get the loan amount disbursed to your bank account swiftly, often within a few hours or days. This is particularly useful in emergencies or when you need immediate financial assistance.

2. No Need for Collateral: Unlike secured loans, such as home loans or car loans, you don't need to provide any collateral to avail of a loan against your credit card. Your credit limit on the card acts as a basis for the loan amount you can apply for, making the process much simpler and faster.

3. Minimal Documentation: Since you're already a customer of the credit card company, the lender already has most of your financial details. This drastically reduces the need for additional documentation, streamlining the application process.

4. Flexible Repayment Terms: Credit card loans often come with flexible repayment options. Borrowers can choose a repayment term that suits their financial situation, helping them manage cash flow better. Additionally, some issuers may offer the option to convert large purchases into EMIs (Equated Monthly Installments), which can also ease the repayment process.

5. Pre-Approved Offers: Banks often provide pre-approved loan offers to customers with good repayment histories and credit scores. These offers can come with competitive interest rates and terms, making them an attractive funding option.

6. No Restriction on Usage: The loan amount disbursed can be used for any personal purpose without any restriction from the lender. Whether it's for medical emergencies, home renovation, or funding a vacation, you have complete freedom in how you wish to spend the money.

However, it's crucial to consider the interest rates and terms associated with such loans, as they can be higher compared to other financing options. Always ensure you read the fine print and understand the repayment structure before proceeding.

Factors to consider before taking a loan against a credit card

Here are some important factors to consider before taking a loan against your credit card in India:

1. Interest Rates:  Interest on loans against credit cards is typically high, often exceeding 20% per annum. This can be significantly higher than interest rates on personal loans or other borrowing options, especially for borrowers with a good credit score. Carefully compare the interest rate offered by your credit card issuer with other loan options available to you.
    
2. Repayment Tenure and Impact on Credit Utilisation: Loan tenures for credit card loans are generally shorter than personal loans, ranging from 3 months to 5 years. However, remember that a longer tenure translates to a higher overall interest cost. Additionally, since your credit card limit gets reduced by the loan amount, your credit utilisation ratio (outstanding credit divided by credit limit) increases. A high credit utilisation ratio can negatively impact your credit score.
    
3. Eligibility and Processing Fees:  Not all credit card holders are automatically eligible for a loan against their credit card. Issuers typically consider factors like your creditworthiness, income stability, and credit card usage history before offering a loan. Additionally, there might be processing fees associated with obtaining the loan.
    
4. Alternatives: Before taking out a credit card loan, explore other borrowing options, such as personal loans, lines of credit, or even overdraft protection on your checking account. These options might offer lower interest rates or longer repayment terms.
    
5. Urgent Need vs Planned Expense: Loans against credit cards are a good option for immediate and unforeseen needs. However, for planned expenses, consider saving up or exploring other financing options with lower interest rates.
    
6. Financial Discipline: The biggest risk associated with credit card loans is falling behind on repayments. Since the loan is linked to your credit card, late payments can attract high penalty charges and severely damage your credit score. Make sure you have a solid repayment plan in place before taking out the loan.

How to Take a Loan Against a Credit Card?

Step 1: The initial action is to verify whether your credit card provider provides a loan using your credit card. This can be confirmed by visiting the credit card company's website or reaching out to their customer service.

Step 2: Before taking out the loan, make sure to thoroughly review and comprehend the terms and conditions, which encompass the interest rate, processing fees, repayment period, and any additional fees.

Step 3: Make sure that the loan amount does not exceed your available credit limit. A substantial outstanding balance on your credit card may impact your ability to access the loan amount.

Step 4: Once you have reviewed the terms and conditions and confirmed the available credit limit, you can apply for the loan through the credit card company's website or by contacting their customer service.

Step 5: Some credit card providers might need extra documentation for verification. This may involve providing evidence of income, residence, and identity.

Step 6: Upon successful verification, the loan will be approved, and the funds will be credited to your bank account or credit card account, depending on the credit card issuer's policy.

Step 7: Repay the loan on time as per the agreed-upon repayment schedule. Late payments may attract additional charges and negatively impact your credit score.

Conclusion

A credit card loan can be a convenient option for obtaining quick funds, but it's important to approach it with caution. Before taking out a loan against your credit card, it's crucial to thoroughly review the terms and conditions. Take the time to carefully consider the interest rates and repayment tenure to fully understand the financial commitment you are making. Additionally, assess your own financial situation to ensure that you can comfortably manage the repayment of the loan within the specified time frame.