Are instant loans better than borrowing against credit card? Reasons explained

If you are short of funds, it is natural to borrow a personal loan. Amid a range of options available, one could choose between an instant loan and a loan against a credit card. Each has its pros and cons, and it is vital to weigh them before you opt for one over the other.

For instance, loans against credit cards generally carry a higher rate of interest and are disbursed against the card's credit limit. Meanwhile, instant loans are typically disbursed in a short span of time after the eKYC is completed. These are some of the yardsticks based on which you can choose one over the other.

Instant loans vs loans against credit cards

I. Interest rate: First and foremost, what should concern any borrower is the rate of interest. Typically, you should choose a loan that carries a lower rate of interest. A small difference in interest rate could lead to a considerable cash outgo over a loan tenor.

II. Processing fee: Another cost – apart from the rate of interest – which the borrower has to bear is the processing fee. This is not paid separately but is deducted prior to the disbursal of loan money. Both the interest and processing fee are collectively known as APR (Annual Percentage Rate) – a term that refers to the annual cost of borrowing a loan.

III. Time taken to disburse the loan: Another factor that usually goes into the decision of raising a loan is the time taken to disburse the loan. As the name suggests, an instant loan is issued instantly, whereas a loan against a credit card – unless it is pre-approved – may take some time.

If you need the loan immediately, then you could opt for an instant loan (so long as the rate of interest is not exorbitant), but if you could wait for a few days, then you could compare the two and choose the one that suits your requirement more than the other.

IV. Total credit limit: When you raise a loan against the credit card, it is adjusted against the card's overall credit limit. If you can't afford to block your credit limit during the loan's tenor, it is recommended to explore other options, such as an instant loan.

Alternatively, if the major chunk of your credit limit is under-utilised, then you may consider this option without any qualms.

Disclaimer: MintMoney has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit score. MintMoney does not promote or encourage taking credit, as it comes with a set of risks, such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.