A loan is usually the last resort to arrange a large sum of money, and the procedure to get one is often excruciatingly long. It takes anywhere between a few days to a few weeks to get it sanctioned and disbursed from banks or finance providers.
Sometimes, there are even delays. It can be due to the applicant’s failure to submit accurate documents, uncertain credit history, or delay in approving down payment sources. Do you know what to do in that case?
Introducing Loan on Credit Card
Credit cards make your life easy. You can purchase an item with it and pay for it at a later date or if you need a big chunk of money quickly, you can avail a ‘Loan on a Credit Card’.
- So, what is a loan on a credit card?
In simple words, it is a type of personal loan that is offered by your credit card provider under your account. It is a simple and quick way to borrow a large sum of money without tedious documentation.
- How much money can you borrow?
The amount of money you can borrow is decided based on your credit score. It can be within your credit limit, or you can apply for amounts that may exceed the limit. It all depends on your eligibility. You can contact your credit card provider for the necessary information. You can also check if can you add a credit card to cash app.
- Is it the same as cash withdrawals?
It is a common confusion. Many people wrongly think that if you apply for a loan on a credit card, your provider increases the credit limit, and you can withdraw money from a nearby ATM. But in reality, the credit card provider offers you a loan under your existing card.
You can apply for this loan when your financial requirement exceeds your cash withdrawal limit. The advantage here is the interest rate for loan on credit card is usually much lower than what you have to pay for cash withdrawal. The loan is processed and credited quickly without any documentation.
- In what form do you receive the money?
Usually, the loan amount is sent as a demand draft. Sometimes, you can receive it directly in your savings account through bank transfer. Given its economic viability and low-interest rate, many informed customers opt for a loan on their credit card. It is also known as a pre-approved loan or pre-qualified loan.
Credit Score Requirement To Avail Loan on Credit Card
The credit score is measured by validating your credit history, credit report, and rating to apply for a loan. It is also known as the CIBIL score, ranging between 300 to 900. The closer your CIBIL score is to 900, the better your chance to get a loan.
Many companies consider 850 a perfect credit score. But today, the minimum requirement for availing a loan on credit card is 750. Anything below 750 gets automatically rejected.
Repair Your Credit Score To Become Eligible For Loan on Credit Card
Is your loan application getting rejected repeatedly? Are you struggling with renting an apartment, getting a good job, or securing affordable insurance coverage? It may be due to your low credit score. If your credit score or CIBIL score is below 750, you must consider getting a credit repair done.
So, what is credit repair? It is a process of rebuilding your credit score using a third-party provider in exchange for payment. There are many cheap credit repair companies available in the market. They can undo the damage you might have done because of faulty financial behavior. Thus, you can again become eligible to get a loan by asking help from top rated credit repair services.
|Note: You must remember, it is not an overnight process. It often takes 4 to 12 months to get your credit fixed and become eligible for a loan.|
Parameters You Must Know About Loan on Credit Card
|Eligibility||This loan is offered on a pre-approval basis. To know if you are eligible, contact your credit card company’s customer care.
Alternatively, you may also be notified via SMS. Your credit card provider determines eligibility based on their internal policies.
|Loan Tenure||Generally it is up to 60 months. Some offer flexible tenure, but it varies on the credit card company’s policies.|
|Interest Rate||It depends on the lender. It is often between 12% to 31% based on the type of card you are using.|
|Processing Fee||It is somewhere between 1.5% to 3% of the loan amount. It is determined based on the lender’s T&Cs.|
|Loan Disbursal Time||If you have a savings account in the same bank, expect to receive the funds within 24 hours. Otherwise, it takes 5-7 business days to receive via NEFT or demand draft.|
Pros & Cons of Loan on Credit Card
Loans on credit cards eliminate messy documentation and prolonged underwriting and approval. All loans against credit cards are pre-approved. It is considered unsecured as you don’t have to submit any collateral. You need a healthy repayment and credit history on your existing card to qualify for this.
Credit card providers and banks offer various repayment options for loans on credit cards. You can choose to pay on a monthly EMI basis or you can opt for the EMI amount to be deducted from your monthly credit limit until it is fully repaid.
Alternatively, you can set a standing instruction to deduct the EMI amount from your savings account on a certain date every month.
Quick and Flexible
Loans on credit cards are processed and credited within 24 hours. Since there are no intermediate processes like application, verification, underwriting, and approval, the waiting time is almost zero compared to traditional loans.
No Guarantor Required
Banks and money lending firms may ask you to provide a guarantor if your credit score is low for conventional loans. But, loans on credit cards are completely collateral-free.
There are very few disadvantages of this loan. It includes:
- High-interest rate
- High processing fee
- Possible block on one’s credit limit
- Strict eligibility
Hope this article has given you enough information to help you decide whether this loan is beneficial for you or not. But rest assured, it is a quick and hassle-free way to arrange a large sum of money in case of any emergency. Just make sure to always read the terms and conditions properly before taking any loan.