Should You Avail of a Personal Loan on Your Credit Card

Dec 05, 2022 / Reading Time: Approx. 4 min

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Most of us use credit cards regularly to shop for the latest gadgets, branded clothes, expensive jewellery, and many more things that we cannot afford to buy in cash. Apart from this, since credit cards offer rewards and cash-back points on certain transactions, many of us use them to pay utility bills, payments for groceries, and many other day-to-day needs. However, credit card holders often find themselves in a cash crunch but do not know that they can use their credit cards to get the cash too! Yes, your credit card can provide you with an instant loan, and I am not talking about credit card cash advance or cash withdrawal that comes with huge charges. While individuals generally prefer availing of personal loans during a financial emergency, a personal loan on a credit card, also known as a loan against a credit card, can be a better alternative requiring zero documentation.

What is a personal loan on a credit card?

A personal loan on a credit card, also known as a loan against a credit card, is an instant borrowing option available for credit card holders. As the name suggests, the loan is offered on your credit card, considering the unutilised amount and your repayment history. While some credit cards may offer loans only up to the unutilised credit card limit, others may offer up to four times the unutilised credit limit. Similar to a personal loan, a loan against a credit card is an unsecured loan. So, you do not have to provide any collateral to avail of the loan, and it comes with a fixed interest rate over a set tenure. While the interest rate charged on a personal loan on a credit card is typically lower than what is set on regular credit card transactions or cash advances, it can be higher than that of a regular personal loan. There is no restriction on the end use of the loan amount as far as it is used for a legitimate purpose.

Should You Avail of a Personal Loan on Your Credit Card
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How does it differ from a credit card cash advance?

When considering taking a personal loan on a credit card, many cardholders believe that if they apply for the loan, their credit card limit will be enhanced, and they can use the card to withdraw cash from an ATM. However, that is not true. When you withdraw cash from your credit card, the credit card provider treats it as a 'cash advance'. You can withdraw cash up to the limit set on your card by the credit card issuer, and just like any other purchases you make from your card, you need to repay it with interest and other charges on the due date. However, a cash advance might not be available on all credit cards.

A cash advance is the costliest transaction you make on your credit card. The interest rate on credit card cash advance is usually very high compared to the normal credit card interest rate. Typically, most credit card providers charge 2% to 3.5% p.a interest on a monthly basis, which is equivalent to 24% to 42% p.a. Furthermore, you will be charged with a cash advance fee which could be either a percentage of the cash advance or a flat rate. For example, your credit card issuer may charge you a fee of 3% of the cash advance or Rs 500, whichever is higher. Therefore, it is crucial to check the credit card terms and conditions to know how much exactly you will have to pay to avail of a cash advance.

Unlike regular loans, cash advances do not have grace periods. So, the interest starts accruing on balance as soon as the transaction gets completed. You will be charged with the interest even if you pay your balance in full and start the billing cycle with a zero balance. Similarly, you will have to pay the finance charges even if you pay the balance in full.

Do I need to submit any additional documents to avail of a personal loan on a credit card?

Since the credit card loan is offered only to existing credit card holders who had submitted their personal and income documents at the time of applying for a credit card, the credit card providers do not ask for any additional documents for the loan. However, depending on your loan amount and credit history, the lender may ask for certain documents.

Can I avail of a credit card loan instantly?

Besides, many credit card providers offer this loan to cardholders based on their credit card transactions and repayment records, making it available only to pre-approved customers. Hence, a personal loan on a credit card can be availed almost instantly by logging into your online credit card account or internet banking.

How do the loan sanction and repayment work?

The loan can be availed by logging into your online credit card account, internet banking, mobile banking, or through customer support. Once the loan is processed/approved, the loan amount is disbursed to your registered bank account. The loan amount (EMI) is billed to your credit card every month, which makes it easier for the borrower to repay the loan in easy monthly instalments.

What is the loan tenure of a personal loan on a credit card?

The loan tenure against a credit card may vary across credit card providers. Lenders offer flexible loan tenures, letting you choose the tenure as per your convenience and affordability of monthly repayment. Some credit card providers offer a loan tenure from 6 months to 36 months, whereas others offer a loan tenure from 12 months to 60 months.

Does the credit card provider charge a loan processing fee?

Like any other loan, the lender charges you with processing fee to process your loan application. The processing fee for a personal loan on a credit card is negligible. Many credit card providers charge a flat processing fee of Rs 500 to Rs 1,000, irrespective of the loan amount. Furthermore, credit card providers come up with several offers during the festivals and end of the year when they do not charge any processing fee or offer discounts on the processing fees.

How much is the credit card loan interest rate?

The interest rate charged on loan against a credit card is lower than the interest rate charged on regular credit card purchases, which is typically 25% to 40% p.a. Depending upon the loan amount and your credit history, the credit card providers may charge interest from 11% to 28% p.a. for personal loans on credit cards. When availing of a loan, it is advisable to compare the interest rate of regular personal loans you are eligible for, as they may have lower interest rates than credit card loans.


Is a personal loan on a credit card a good option?

A personal loan on a credit card can help you during a cash crunch or financial emergency. These loans are unsecured and do not require collateral or a guarantor to secure the loan. The loan process is pretty fast and does not need extensive documentation, making it an ideal choice when you need money instantly. However, credit card loans carry high-interest rates and are one of the costliest loans available. Hence, before availing of a loan against a credit card, it is advisable to check your requirement and other possible options to arrange the funds. Availing of such high-cost loans for splurging can put you in a debt trap, and it can take a long time to come out of such a challenging situation. However, if you genuinely need immediate funds to pay for medical expenses or an emergency that cannot be avoided, you can consider opting for a personal loan on a credit card.


Warm Regards,
Ketki Jadhav
Content Writer

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