Loan against Credit Card

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Loan against Credit Card
Credit card provides you with the facility of cash withdrawal but it is quite costly in terms of the interest expense. Let’s say you have an emergency cash requirement and you have only one or two days in your hand.

There is no chance that you can get a personal loan sanctioned in such a short span of time. The only option which pops up into your mind is cash withdrawal using your credit card. We all face such emergencies at times.

So is there a better and cheaper way of arranging funds in such a short span of time? We will discuss one such option which is Loan against your credit card in this article.

What is Loan against Credit Card ?

If you are holding a credit card from a bank and your credit credibility and history is good bank will provide you a personal loan based on your credit history against your credit card. If you have never defaulted on your credit card debt, the loan is provided instantly and without any documentation. The interest rate of the loan is quite competitive to what is available for normal personal loans in the market.

Important features of Loan against Credit Card

  • No additional documentation is required - Banks uses the documents already available with them.
  • Quick processing time – No documentation involved hence the processing time reduces drastically.
  • High processing fee – As it’s an unsecured loan processing charges are high.
  • Personal loan amount over and above cash withdrawal limit – You can get a loan which is above the cash withdrawal limit of the credit card.
  • Interest rates competitive to personal loan rates – Interest rate which you get on these loans are slightly higher as compared to what you get on personal loans.
  • High pre payment penalty –Bank is taking a lot of risk so they don’t want to lose the interest income.

Eligibility Criteria

Banks prefer credit card holder of the bank with credible credit history. There should be no defaults in the payment history and customer should be having a long term relationship with the bank.

Amount of Loan

Banks normally sanction loan amount which is over and above the cash withdrawal limit of the card. The amount disbursed is directly proportional to the credit credibility. One who has no default history and is an old customer can negotiate higher disbursements at cheaper rates.

When you should apply for Credit Card Loan

This option is only recommended if you have very urgent requirement of cash and there is shortage of time. This is the second best solution as compared to withdrawing cash on your credit card. If your purpose gets solved by applying for a personal loan, it’s advisable not to opt for this option. Even though the interest rates are competitive, they are still higher as compared to interest rate being offered on personal loans and bank might charge you various kinds of processing fee which will not be friendly to your pocket.

Read more about: credit card, loan
Story first published: Friday, April 13, 2012, 10:31 [IST]
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