Loans against credit cards are quite common nowadays. Being an unsecured loan, it is similar to a personal loan. The only difference being that a personal loan takes a few days to get approved while a loan against credit card is a pre-approved loan. Cardholders can easily apply for an instant loan against their card if they are using a credit card. Loan against credit card does not require any documentation, unlike a personal loan. Hence it is one of the quickest options to get loan approval.
Most banks like HDFC, ICICI, HSBC, Citibank and Axis Bank offer their customers credit card loans at varying interest rates. Unlike cash withdrawals on your credit card that comes with higher rates of interest, on loan against credit cards banks charge lower rates of interest. However, the maximum loan amount will not exceed your credit card limit, and generally, the interest rate ranges between 13 per cent and 21 per cent.
5 things you should be aware of if you are also planning to take a loan on your credit card:
Choosing a tenure: Borrowers get to choose the tenure of their choice. Most banks offer these loans on credit cards with a flexible tenure option. Hence, you can choose the tenure depending on your needs. Generally, banks offer a maximum tenure of 24 months on unsecured loans against credit cards. However, some banks also give options over 24 months, which vary from customer to customer.
Avoid Late payments: Borrowers should avoid late payments, as it can affect their chances of getting a top-up loan. Banks also offer top-up loans against credit cards to its customers. To be eligible for this, you should have a good credit history with no inconsistent payments. Hence, you should avoid late payments if you want to get loans in the future.
Processing charges: Most banks charge a processing fee on the loan when you take a loan against your credit card. Though this varies from bank to bank, generally, processing charges range between 1 per cent and 5 per cent of the loan amount.
Pre-closing your loan: Borrowers can also pre-close their loan at any time they want. For instance, without necessarily intimating your bank, you can pre-close the loan against your credit card any time you want. However, certain pre-closure charges will be charged as determined by your lender while taking the loan.
Loan default is not a credit card default: The impact of credit card repayment default and loan against credit card default is different. If you default on the loan against a credit card, it will be considered as a loan default and will affect your credit score severely. Credit card defaults also affect the borrowers’ credit scores, but not as much as loan defaults.