A Credit Card Loan Can Be Costly
Credit card loan may seem tempting when you are urgently in need of money. Many people do not know their eligibility criteria for taking a loan on their credit card or the amount of loan they can actually procure. However, there are certain things to consider before you apply for a credit card loan.
What is a loan on a credit card?
It is a common misconception that the credit card loan is just the amount you withdraw from an ATM. On the contrary, a loan on credit card is just similar to a personal loan. The only dissimilarity is that the credit card loan is approved beforehand since you are already a credit card holder of the bank and you do not have to submit any documents for it. A personal loan can be taken quickly but you do have to go through the documentation process.
Why you should avoid taking a credit card loan
There are several reasons why you should control your expenses and retrain from taking a credit card loan:
The rate of interest is too high
Self-control in financial matters is not just a piece of moral advice; it is practical. The rate of interest for a credit card loan is very high, which makes financing your assets expensive. Just think if you were already short of funds for buying something, you would not want to buy it at an exaggerated price by adding the bank interest to it.
The amount of interest keeps on increasing if you do not pay the entire balance
APR or annual percentage rate is just an introductory rate of interest, which keeps on increasing after a time if you do not pay your credit card balance in full. If your APR is just 8.99% in the beginning, it may shoot to 29.99% in a matter of few days without you even noticing it. If you keep yourself disciplined enough to make payments before due date, you have to be extra careful that you do not make huge purchases like car repairs, house repairs, etc. Before you exhaust your credit limit, you must think of unplanned circumstances like losing the job, an accident injury, etc.
Take a loan only when it is urgent
Taking a loan against your credit card does not make any sense for fulfilling your hobbies. You must take it only when there is an emergency. For instance, you can spend that money for hospital bills or other medical emergencies. Other than such severe circumstances, the best advice is to stay away from credit if you want to sustain decently in the long term.
How to use personal loan in place of credit card loan
If you have smaller purchases, you must use a credit card with 0% APR. You can pay for these purchases in 15 months or less. If you have larger purchases to make, for which you need the time of a few months to pay, you can even apply for a new credit card with 0% APR to pay off the debt in 12 to 18 months.
As long as the payment is made before the offer ends, no interest is charged thereof. If you need more time to pay the debt, you must consider taking a personal loan in place of credit card loan.
Your CIBIL score is affected by debt
If you hold on your negative credit balance for a long time, it damages your CIBIL score in the long term. If you wish to have a high score at all times, it is recommended that you maintain your account balance under 35% of the available limit of credit. For example, if you have a credit limit of Rs. 1000, you can happily owe Rs. 350, but not more than that.