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Credit Cards vs. Unsecured Loans: What is Right for You?

By Finserv MARKETS - Apr 17,2019
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Do you have too many pending payments? Or maybe you’re considering getting something for which you require financial help but can’t decide between going for a credit card payment or an unsecured loan! That choice depends on what you need the loan for and for how long you need it. And, to help you make the decision between credit cards vs unsecured loans here are some advantages and disadvantages of the two borrowing methods.

Credit Card

Advantages

  • Promotional offers: Many a time, credit card companies offer promotional discounts such as 0% interest rates for a limited time.
  • Reward: Apart from promotional discounts, you can even get reward programs like points accrued or other benefits.
  • Credit history: If you use your card wisely, you will get a good credit history. This will not only get you more benefits but also help you get loan more easily.
  • Helpful in an emergency: Many hotels and car rental companies require a hold on your credit card when you are travelling. Having a credit card will help you in such a case.
  • Balance transfer: You even have the option to transfer your balance to another card. And, if you get a promotional offer on your card, the interest on your debt will also decrease substantially.

Disadvantages

  • Qualified borrowers: While promotional offers may sound interesting, the only people to qualify for these offers are the ones with a good credit history and high income.
  • Overspending: Having ‘unlimited’ cash at your disposal can be tempting and you might end up overspending and then regretting it later.
  • Interest: A credit card does not come for free. Just like in a loan, you will have to pay interest on a credit card payment too.
  • Too much debt: If you use your credit card frequently then you might already have some pending charges. Adding to it might not be a wise choice and the interest and debt will only increase with time.

Unsecured Loan

Advantages

  • No collateral: The most important benefit of an unsecured loan is that it doesn’t require a collateral.
  • Evenly split debt: Unlike a credit card, unsecured loans have a fixed repayment period and the repayment amount is split over an equal tenure.
  • Quick disbursement: Since the amount of loan is lesser and the tenure lower, it is much quicker to get an unsecured loan.
  • Strong credit profile: Since unsecured loans are an instalment debt and non-revolving debt, it can strengthen your credit profile. When calculating this score, your revolving credit is what is considered and a utilization of above 30% will reduce your score.

Disadvantages

  • High interest: Generally, unsecured loans have a higher rate of interest because they do not have any collateral.
  • No flexibility: You generally don’t get to choose your repayment tenure. It is based on your loan amount. And, if you want to repay the amount early, there are early payment charges involved.
  • Small loan amount: Unsecured loans are not for borrowing a large sum. Since they are unsecured, a large loan amount is not usually approved.
  • You need good credit history: For getting an unsecured loan, you must have a good credit history, since it is the basis on which banks generally provide a loan.

The Final Word

Ultimately, the difference between credit cards and unsecured loans all depends on how much and for how long you want to borrow it. Both options have their benefits and drawbacks. While a credit card is most useful in case of urgent cash requirements, an unsecured loan can come in handy if you want a long-term repayment plan. Just understanding what each process entails can make your choice easier. And, when you’ve made your decision, Finserv MARKETS can help you get your loan.

With Finserv MARKETS, applying for an unsecured loan like a Personal Loan is easy, quick and completely hassle-free. What’s more? The entire process is online and can be processed right from the comfort of your home. So why wait? Avail a personal loan with us today and solve all your financial worries.

Finserv MARKETS, from the house of Bajaj Finserv, is an exclusive online supermarket for all your personal and financial needs. Loans, Insurance, Investment, and exclusive EMI store, all under one roof- anytime, anywhere!

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Bajaj Finserv Direct Limited ("BFDL") is primarily engaged in distribution of financial products and services through its digital platform (“Bajaj Finserv MARKETS”) and inter alia renders services of customer acquisition, providing preliminary credit support activities, fulfilment services and post-acquisition customer services to Banks, NBFCs, HFCs. BFDL is also a registered Corporate Agent (Composite) under valid IRDAI registration number: CA0551 valid till 10-Apr-2024 for solicitation and servicing of Insurance Products. Registered Office: Bajaj Auto Limited Complex, Mumbai – Pune Road, Akurdi, Pune – 411 035 CIN: U65923PN2014PLC150522