Credit cards aren’t just for swiping; you can use them to get a loan right now. However, before you run out and apply, you should learn more about this loan, how it works, and if it is the right solution for you. A loan on your credit card is a personal loan preapproved for you by your card company, and based on your spending history, payment history, and your credit limit. It’s not like revolving credit. Instead of buying things, and making payments for them, the bank grants you a specific amount of money either directly into your bank account or helps you convert a large purchase into an installment agreement.
The biggest advantage is that you don’t have to apply for a new loan, which hopefully means less headache. Often there’s no official paperwork, no collateral, and approval is instant—you’re typically approved in minutes. Most credit card loans have a fixed interest rate, and you make the same monthly payment over a time frame—typically between six months and 36 months.
But it’s not all that exciting. The interest rates on credit card loans are generally lower than the interest rates associated with genuine credit cards (which can be as high as 40% a year) but higher than compared to many personal loans offered by banks. If you miss a payment, the charges and late fees can compound quickly.
It’s also important to point out that when you borrow against your credit card it deducts from your maximum amount you can borrow. So if I borrow ₹1,00,000 on a ₹1,50,000 limit, then I only have ₹50,000 left to buy things.
Before you submit the application, confirm your eligibility by logging into your bank’s mobile app or website. Most banks show your pre-approved amount right in its display. You can also review terms regarding your repayment, processing fees, and interest costs associated with the loan. To wrap up, a credit card loan can be an easy and quick way to obtain money—but only when you know exactly what you’re getting into and if you are responsible with its use.