Top 4 differences between instant loans and credit cards to make your life easier

The curbs brought in by COVID-19 and the subsequent resumption of economic activity have resulted in revenge consumerism. Credit requirements have also proportionately risen supporting this phenomenon and offering consumers the monetary leverage they need to make the most of the buyer’s season. When going the borrowing way, it is imperative to understand the difference between each financial instrument and make an informed decision.

There are several factors that come into play, determining whether an instant personal loan or a credit card loan is more suited to the financial need at hand. 

It’s about much more than choosing the lending vehicle with the lower interest rate. Both instant loans and credit card loans alleviate your unforeseen financial needs and have similar credit provisions around loan limits, delayed repayment charges, and underwriting parameters. However, there are key differences in terms of usage terms, tenure and repayment cycle that you should consider when zeroing in on one of the two instruments. Let’s dig deeper into three of the most relevant differentiating factors between the two. 

Acceptance and ease

Nothing beats having easy access to cash and there isn’t a single existing vendor that does not accept cash. However, a lot of vendors do not offer the provision of card payments, while some lack the resources to accept credit cards. Drawing cash from your credit card comes at a higher interest rate than ordinary card transactions. This is where online loan apps have an advantage over credit card loans because these loan apps disburse instant cash into your bank account within minutes so you can incur your required expenses without worrying about selecting a vendor with provisions.

Speed and interest rates

Another upside to instant loans is suggested in its name itself! That’s right, it literally means instant disbursals so they can help you meet real emergencies. On the contrary, credit card applications and approvals may take more than three days. Even so, you may find out after days of anticipation, that your credit card has not been sanctioned at all.

This can end up throwing you off your plans. If you are already someone with an existing credit card, taking a loan on the card may be subject to offers and available at select merchants/product categories/ticket sizes. Credit card interest rates are also more often than not, besides the annual charges one incurs while maintaining one. For exclusively cash needs, withdrawing cash from the credit card means paying higher interest rates. These factors contribute to making credit cards a more expensive option than instant loans for the customer.

Short-term vs longer term tenures

Loans taken out of your credit limit typically have to be repaid within a 30-45 day tenure. It comes with the clause of higher interest rates being charged on the outstanding amount as well as a dipping of your credit score should the repayment not be completed within this tenure. You may consider converting this outstanding to EMIs, which allow you a more flexible repayment tenure, subject to eligibility. Personal loan interest rates, on the other hand, do not vary during the loan repayment tenure.

At the time of loan sanction, an EMI calculator clearly outlines the monthly due payment, and late payment charges are accrued separately according to the policies of the lending platform and not on the overall outstanding. Therefore, when you require credit that you plan on paying off over a longer term, it is advisable to opt for instant personal loans.

Limitations on loan ticket size

In the case of a credit card, your credit limit is dependent on your salary. It is typically set at two to three times your monthly salary. However, online instant loan apps consider many other factors when profiling their borrowers. Some determinants that come into play in the case of online loan apps include debt-to-income ratio, job stability, and credit score, among others. When looking at funding a bigger expense that you can comfortably pay back, instant personal loans are the way to go.