Introduction: Which Should You Choose?
You need money urgently. Your options seem simple: use your credit card or get a personal loan.
But here's what most Indians don't realize: using the wrong option could cost you ₹50,000-₹2,00,000+ in unnecessary interest.
A ₹1 lakh expense on a credit card at 36% interest costs far more than the same amount on a personal loan at 12% interest. The difference isn't small—it's life-changing.
This guide breaks down the exact differences, shows real-number examples, and helps you choose the right option for your situation.
Quick Comparison: Personal Loan vs Credit Card
| Factor | Personal Loan | Credit Card |
|---|---|---|
| Interest Rate | 10-16% p.a. (lower) | 30-42% p.a. (much higher) |
| Max Borrowing | ₹10,000-₹50,00,000 | Limited to card limit (₹10,000-₹10,00,000) |
| Repayment Tenure | 12-60 months (flexible) | 3-24 months (short & fixed) |
| Approval Time | 1-3 days | Instant (if pre-approved) |
| EMI Predictability | Fixed EMI every month | Variable (depends on spending) |
| Best For | Planned big expenses | Small, short-term needs |
Real Example: How Much Extra You Pay
Scenario: You Need ₹1,00,000 Urgently
Credit Card Interest: ₹43,000
SAVINGS with Personal Loan: ₹36,392 (86% reduction!)
When to Use Personal Loan vs Credit Card
Use PERSONAL LOAN When:
- Large Amount Needed: ₹1,00,000+. Personal loans allow higher amounts.
- Planned Expenses: Home renovation (₹5,00,000), wedding (₹3,00,000), education (₹10,00,000)
- Medical Emergencies: Hospital bills (₹2,00,000-₹10,00,000)
- Debt Consolidation: Multiple high-interest loans rolled into one low-interest personal loan
- Long-Term Repayment Preferred: You want smaller monthly EMIs over 3-5 years instead of high payments over short period
Use CREDIT CARD When:
- Small Amount: ₹10,000-₹50,000
- Can Pay in Full Soon: You'll have funds to repay within 1-3 months
- Emergency Temporary Bridge: Quick cash needed until salary arrives (then repay immediately)
- Want Rewards: Cashback, air miles on credit cards (only if you pay full balance monthly)
- No Time to Approve Loan: Need instant funds (credit cards are pre-approved)
Detailed Factor-by-Factor Comparison
1. Interest Rates (Most Important)
Fixed interest, calculated on remaining balance. Lower because it's collateral-less but lenders have lower risk.
If you don't pay full balance, interest starts at 30%+ per annum. Compounds daily on unpaid balance. Can go higher if you miss payments.
2. Repayment Tenure
You choose the tenure. Longer tenure = lower EMI, shorter tenure = higher EMI but pay off faster.
Limited options, often forced into short tenure. Minimum payment option traps you in revolving debt.
3. Borrowing Amount
Based on your income and credit score. Most Indians can get ₹3-5 lakhs easily.
Usually ₹10,000-₹10,00,000. If you max out, no more borrowing available.
4. Processing Speed
Need documents (salary slip, bank statement, ID proof). Once submitted, approval is quick.
If you already have a card, instant. If you don't, need to apply (1-2 days).
5. Impact on Credit Score
Timely EMI payments strengthen your credit score. Fixed payments show discipline.
High utilization (using 80%+ of limit) hurts score. Missing payments devastates it. Paying full balance monthly helps score.
Real Case Studies: When People Got It Right and Wrong
Case Study 1: Priya's Wedding Mistake
Case Study 2: Rajesh's Smart Choice
Common Mistakes to Avoid
Credit card at 36% for ₹5 lakhs cost nearly 3x more than personal loan at 12%. Never do this.
Paying ₹5,000 minimum on ₹1,00,000 balance means 7+ years to repay with ₹40,000+ interest. Always pay in full or use personal loan.
Borrowing ₹20,000 for a personal loan (processing fee, documentation) is overkill. Use credit card for quick, small needs.
Each application = hard inquiry = credit score drops by 5-10 points. Space applications 3-6 months apart.
Quick Decision Tool
Use this flowchart to decide:
- Amount needed?
- <₹50,000 → Can use credit card (if small tenure)
- ₹50,000-₹5,00,000 → PERSONAL LOAN (best option)
- >₹5,00,000 → PERSONAL LOAN definitely
- Timeline to repay?
- <1 month → Credit card (pay in full)
- 1-3 months → Credit card (if you can pay in full)
- 3-12 months → Personal loan
- >12 months → Personal loan
- Type of expense?
- Planned (wedding, renovation) → PERSONAL LOAN
- Emergency (small) → Credit card
- Medical emergency → PERSONAL LOAN (higher amounts at low rate)
Here's the bottom line: Personal loans almost always cost less than credit cards for borrowing above ₹50,000.
Key Takeaways:
- Personal Loan: Lower interest (10-16%), fixed EMI, best for planned large expenses
- Credit Card: Higher interest (30-42%), convenient for small urgent needs ONLY if you pay in full monthly
- ₹1,00,000 at personal loan rate (12%) costs ₹6,608 vs credit card (36%) costs ₹43,000—a ₹36,392 difference!
Your Action Plan:
- ✓ For anything above ₹50,000 → Apply for personal loan
- ✓ For small amounts <₹50,000 → Use credit card ONLY if you'll pay full balance within 1-2 months
- ✓ Never carry credit card balance beyond 3 months
- ✓ Always choose fixed tenure personal loan over revolving credit card debt
The Real Truth: Most Indians choose credit cards because they're convenient. But this convenience costs them ₹1,00,000-₹5,00,000+ over a lifetime. Personal loans require one extra step (1-3 day approval) but save you a fortune.
Choose personal loans for big needs. Your future self will thank you.