Personal Loan vs Credit Card: What’s Best For Your Financial Emergency?

In sudden financial emergencies, two common options emerge—credit cards and personal loans. Both are unsecured loans , meaning you don’t need to pledge any collateral. But which one is the wiser choice when you need urgent funds?

Credit Card : Advantages and Drawbacks

Credit cards have become integral to many people's financial lives. They offer convenience for bill payments, shopping, and even cash withdrawals . However, cash withdrawals using a credit card attract hefty charges, so it’s best to use them sparingly. Credit cards are also useful for paying rent or school fees, though a small fee is charged. One significant perk is the rewards system—offering points, gift cards, cashback, discounts, and vouchers—benefits not available with personal loans.

Credit cards offer a grace period, typically up to 45 days, depending on your billing cycle. If you repay the full amount within this period, no interest is charged. However, missing the payment deadline can lead to high-interest charges, which differ from one bank to another.

Is a Personal Loan a Good Choice?

If you need a lump sum, a personal loan may be the way to go. Banks require you to complete paperwork and assess your repayment capacity before approving the loan. Once approved, the funds are transferred directly to your account. Do keep in mind that personal loans often come with processing fees, which vary across banks.

Being unsecured, personal loans typically have higher interest rates compared to home or auto loans. Another thing to consider is that you can’t always repay the loan in full before a certain time period without incurring penalties, such as pre-payment charges. Additionally, GST is applicable on personal loans.

Credit Card or Personal Loan: Which is Right for You?

The decision depends on your specific needs. If you require a smaller amount (₹20,000-₹30,000) for a short-term need like a wedding purchase, a credit card is usually the better option. But be cautious—if you can’t repay on time, the high interest rates can spiral into a debt trap.

For larger amounts and longer repayment periods, a personal loan may be the better choice. Personal loans offer more flexible repayment options , including the ability to adjust your EMI according to your income, making it easier to manage the loan over time.

Ultimately, your choice should align with the amount you need and the time frame for repayment.