A loan on a credit card?

Aparna received a call from a bank, which is also her credit card provider, offering her a ‘loan on credit card’. Yes, loan on credit card. She assumed it to be a cash withdrawal facility on the credit card. Conversation with the phone banker made things clear as she realized that it is not the same as cash withdrawal on her card.

Loan on a credit card is similar to personal loans, but this is a pre-approved one, and comes without any documentation. Even though a personal loan is among the quickest options to get a loan, some bit of documentation is still required and hence it may take a couple of days at least for it to come through. However, in case of a loan on credit card, there is no need for any documentation and hence it is by far the quickest source of unsecured finance.

Loan on credit cards is often mistaken for cash withdrawal on credit cards. The key difference is the interest rate charged – interest on loan on credit card will be similar to or a few notches higher than that of a personal loan while interest on cash withdrawals tend to be much higher and also the limit on cash withdrawal could be much lower than that of the eligible loan amount on the credit card.

This facility may be best suited when there is an immediate or an urgent need for cash and you cash withdrawal limit is insufficient to satisfy your need. Cash withdrawal on credit card can satisfy your need at the spur of the moment but it comes with a high interest rate.

Hence, it makes more economic sense to opt for loan on credit card vis a viz the cash withdrawal facility because the interest rate is lower and the loan disbursal is also quick because of no documentation needed. You will either receive a demand draft from the bank or a direct transfer to your bank account.

* Loan on credit card is akin to a personal loan with the advantage that there is no documentation involved as it is preapproved. So disbursal is quick.

* Processing fee will be charged, which would be a minimum of a particular sum or a percentage of the loan amount.

* The repayment will be in monthly installments and there would be a prepayment facility…

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