A credit card loan, also known as a loan against a credit card, allows you to borrow money utilizing the available credit limit on your card. This loan option provides rapid access to funds without requiring any collateral or extensive documentation. It’s like getting an advance on your credit, which you repay in installments with interest.
How does it work?
Credit card loans are pre-approved, so if you meet the eligibility criteria set by your bank or financial institution, accessing the funds happens almost instantly. Here’s a detailed look at how they work:
Approval and loan amount
Typically, the borrowing limit is determined by your credit card’s available credit and your credit background. Lenders evaluate your spending patterns, repayment history, and overall creditworthiness to decide your eligible loan amount. A high credit limit and good repayment history typically mean you can access a larger loan amount. Some loans are offered within your credit limit, while others can exceed it, depending on your eligibility and needs.
Disbursement
Upon approval, loan funds are usually instantly transferred to your bank account. Additionally, certain banks may provide the choice to receive the funds through a demand draft. This quick disbursement ensures you get access to the money right when needed, addressing urgent financial needs without delay.
Repayment
Repaying the loan is straightforward and convenient. The loan amount is divided into easy monthly installments (EMIs) added to your monthly credit card statement. This means repaying the loan amount and any interest charges over a set period. Usually, you have the flexibility to select a repayment period that spans from a few months to several years, depending on your financial circumstances and the policies of the lender. This flexibility in repayment options enables you to handle your finances more efficiently without burdening your monthly budget.
Interest and fees
The interest rate for a credit card loan may fluctuate depending on the lender and your credit history. While these loans commonly offer competitive rates, it’s crucial to examine the terms thoroughly. Additionally, certain banks may impose a processing fee, which could be a fixed sum or a percentage of the loan amount.
Impact on credit limit
Taking a loan against your credit card reduces your available credit limit by the loan amount. For example, if your credit limit is $10,000 and you take a loan of $3,000, your available credit limit will be $7,000 until you repay the loan. Some options do not block your credit limit, allowing continued use of your card for regular purchases.
What are the requirements for getting one?
To get a loan from your credit card, you need to meet certain rules:
- Having a Credit Card: You must have a credit card from the bank that offers the loan. If you do not currently possess one, you will be required to apply for it and undergo the approval process.
- Good Credit Score: A favorable credit score indicates your proficiency in timely loan repayments. This makes banks trust you more and might give you better loan terms. Usually, a score above 700 is good.
- Credit Limit: Your credit limit determines the amount of money you are eligible to borrow. You can usually borrow a percentage of this limit. For example, if your limit is $10,000, you might borrow up to $9,000.
- Repayment History: Banks look at how you’ve repaid loans before. If you’ve been good at repaying on time, you’re more likely to get approved.
- Income and Job: Certain banks aim to verify your employment status and stable income. This shows you can pay back the loan each month.
What’s the process of getting a loan on a credit card?
Obtaining a loan through your credit card is straightforward, particularly if your bank provides this option. Here’s a simple guide on how to do it:
- Log into your online banking or mobile app: Go to your bank’s website or app and log in with your details. Ensure that your credit card is registered for online services if it has not been done already.
- Check if you’re eligible: Navigate to the segment where you oversee your credit card. Check your eligibility for a loan based on your credit history and card usage.
- Apply for the loan: If you’re eligible, apply online. You can usually choose to borrow within your credit limit or even more, depending on what you need.
- Choose the loan details: Determine the amount you wish to borrow and the repayment duration required. The platform will display the maximum borrowing limit available to you.
- Fill out the application: Complete the online application by giving all the needed details. Check everything is correct before you submit.
- Get the money: Upon approval, the loan funds will be deposited into your bank account immediately. Some banks can also send the money as a demand draft if you prefer. This fast way of getting money is one of the best things about getting a loan on your credit card.
Should you get one?
Before you decide whether to take a loan on your credit card, think about these good and not-so-good things:
Pros
- Quick Access to Money: Credit card loans let you get money fast, which can be helpful in emergencies. Once approved, you typically receive the money within minutes.
- No Need for Collateral: These loans do not require you to provide any valuable assets as security, reducing the risk for you.
- Flexible Repayment: You have the flexibility to select the repayment duration, allowing you to choose a plan that aligns with your financial situation.
- Good Interest Rates: Many banks offer loans with decent interest rates. This renders them more economical compared to certain other loan options, such as payday loans.
- Less Paperwork: Applying for these loans is easy. You won’t need to fill out numerous forms because most of the checks are already completed based on your credit card history.
Cons
- High Interest: While the rates are good, they can still be higher than other loans. Make sure to check and compare rates to get the best deal.
- Lower Credit Limit: Taking a loan reduces how much you can spend on your credit card. This might limit what you can buy.
- Risk of Debt: It’s easy to borrow too much and end up in debt if you’re not careful. This can cause financial pressure and negatively impact your credit rating.
- Fees: Some loans come with extra fees that you have to pay. For example, you might have to pay a fee to get the loan, which adds to how much you have to pay back.
Getting a loan on a credit card is a simple process
Obtaining a credit card loan is straightforward and swift, offering assistance in urgent financial circumstances. It provides immediate funds without requiring collateral or extensive documentation. Eligibility primarily hinges on maintaining a good credit score and a track record of timely repayments. If you need money fast and have a good repayment record, this type of loan could be useful. You can apply online easily, which makes it convenient. But before you apply, make sure to think about the good and bad points to decide if it’s the right move for you.