Personal Loan vs Credit Card: Most people use their credit card or a personal loan when they need money quickly for unforeseen reasons like travel, home upkeep, or medical expenditures. Both have various costs, advantages, and disadvantages, but they can both help you out when you need money. You may avoid future worry and save money by figuring out which one best fits your financial needs.

Simple Guide for Personal Loan:
Both banks and non-banking financial companies (NBFCs) can offer personal loans. You take out a loan and pay it back over a predetermined time period, say one to five years, in monthly installments (EMIs). Interest rates vary based on your repayment history, ranging from 10% to 24% annually.

Because they allow for a disciplined repayment plan and have interest rates that are often lower than credit card bills, personal loans are best suited for greater demands, such as weddings, college tuition, or unexpected medical expenditures. However, even if the application process is quicker than for the majority of other loans, it still takes a few days for approval and payment.

Simple Guide for Credit Cards:
In contrast, a credit card allows you to borrow a predetermined amount. You won’t pay interest if you pay off your current debt within the interest-free period, which is typically 20 to 50 days. If not, interest will be assessed, typically ranging from 30% to 42% each year, making it one of the priciest forms of borrowing.

You should only use credit cards for emergencies or minor, transient purchases that you can pay off right away. They’re quick and easy, but if you don’t pay them back on time, the high interest rates can turn a modest purchase into a huge debt.

Also Read: Real Estate vs Mutual Funds: Long-Term Investment Guide

When is a Personal Loan Best to Use?
If you require more than ₹50,000 and require more time to repay, choose a personal loan. The interest rate is lower, which lowers your total expenses, and the EMIs are fixed monthly, making them easy to budget for. Consolidating debts, combining multiple high-interest payments into a single, simple loan, is also advantageous.

When is a Credit Card Best to Use?
If the cost is minimal and you are confident that you will pay the full amount off before the due date, choose a credit card. It is an inexpensive short-term borrowing mechanism because of the interest-free period. If you want additional benefits like cashback, reward points, or free insurance coverage, credit cards are also practical.

When can you use a Credit Card?
1. Funding urgency: While credit cards provide instant access, personal loans may require several days.

2. Repayment capacity: A personal loan is safer than a credit card unless you are certain that you can pay off the entire balance on time.

3. Cost of borrowing: Before making a decision, compare the interest rate, processing charge, and other costs.

4. Impact on credit score: Either way, making on-time payments on your debts enhances your credit history, but failing to make payments lowers your score.

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