Are you unsure about the best financing option when you need quick funds or plan a large purchase? You’re not alone. Many individuals often find themselves caught between choosing a personal loan and a loan against a credit card. Both options can help you meet your financial requirements, but each comes with distinct features, advantages, and trade-offs.
In this comprehensive guide, we’ll compare the two financial products—personal loan and loan of credit card—to help you determine which is more suitable for your situation. Whether you’re planning a vacation, managing an emergency, or exploring small business loans or a loan to buy a business, understanding your options will help you make informed decisions.
What Is a Personal Loan?
A personal loan is an unsecured form of credit offered by banks and financial institutions. Since it’s unsecured, you don’t have to pledge any collateral. The loan amount you are eligible for largely depends on your income, employment history, and credit score.
Key Features:
- Loan Amount: Usually ranges from $1,000 to $50,000
- Repayment Tenure: Typically between 12 to 60 months
- Interest Rates: Between 10% to 15% p.a. for good credit scores
- Usage: No restriction on end-use
Pros:
- Higher loan amount compared to credit card loans
- Lower interest rates if you have a strong credit score
- Fixed EMIs (Equated Monthly Installments) make budgeting easier
- No need to use existing credit card limits
Cons:
- Approval process may take longer
- Requires income proof, identity verification, and other documents
- May include processing fees and prepayment penalties
What Is a Loan Against Credit Card?
A loan against a credit card is a pre-approved loan offered to existing credit card holders. It doesn’t require separate documentation and is either within your existing credit limit or slightly above it, depending on your relationship with the bank and repayment history.
Key Features:
- Loan Amount: Based on your credit limit or over-limit offer
- Interest Rate: Typically higher than personal loans (13%–24%)
- Repayment Tenure: Shorter (usually up to 24 months)
- Disbursement: Instant for pre-approved customers
Pros:
- No documentation or credit check needed
- Instant loan disbursal
- Ideal for small, short-term cash needs
- Option to convert big purchases into EMIs
Cons:
- Interest rates can be higher than personal loans
- Can affect your credit utilization ratio
- Limited loan amount compared to personal loans
To understand more about this loan type, you can read our full guide: What Is It & How to Apply for a Loan Against Credit Card?
Comparison Table: Personal Loan vs. Loan Against Credit Card
Criteria | Personal Loan | Loan Against Credit Card |
Approval Time | 1–3 business days | Instant |
Documentation Required | Yes | No |
Interest Rate | Lower (10%–15%) | Higher (13%–24%) |
Loan Amount | Up to $50,000 or more | Limited to card limit or slightly more |
Repayment Tenure | Flexible (12–60 months) | Shorter (up to 24 months) |
Usage Restrictions | None | None |
Credit Score Impact | Moderate to High (depends on usage) | Can increase utilization ratio |
Best For | Long-term, larger expenses | Short-term, small emergencies |
When Should You Choose a Personal Loan?
If you are planning:
- A major purchase like a car or home renovation
- A loan to buy a business or invest in equipment
- To consolidate high-interest debts
Then, a personal loan might be the ideal choice. The longer tenure and lower interest rates make repayments easier and more manageable.
It is also a go-to option if you’re applying for small business loans and need funds with structured EMIs.
When Should You Choose a Loan Against Credit Card?
Choose this loan option if you:
- Need instant cash for medical emergencies or short-term needs
- Already have a good repayment history with your credit card issuer
- Don’t want to go through a lengthy approval process
Also, a loan of credit card is ideal if the required amount is relatively small and you’re confident of repaying it within a few months.
Want to maximize your credit card use? Read our blog on: 5 Simple Ways to Earn Credit Card Rewards
Impact on Credit Score
Both loans impact your credit score, but in different ways:
- Personal Loan: Adds variety to your credit mix; timely repayments can enhance credit score.
- Loan of Credit Card: Increases your credit utilization ratio, which can temporarily lower your credit score if not managed properly.
If you’re trying to build or repair your credit, check out: Best Credit Cards for People with Low Credit Scores in 2025
Case Study: Using Each Loan Type Wisely
Let’s take two real-world scenarios:
Case A: John needs $10,000 to renovate his home. He applies for a personal loan and gets a 4-year tenure with a 12% interest rate. He pays $263/month and benefits from a lower EMI burden.
Case B: Priya needs $2,000 for urgent medical expenses. Her credit card issuer offers a pre-approved loan of $2,000 at 20% interest for 12 months. She gets the amount instantly and repays around $185/month. Despite higher interest, the convenience works in her favor.
Both made the right choice based on their situation.
Common Mistakes to Avoid
- Over-borrowing: Take only what you can repay comfortably
- Ignoring Fees: Watch out for processing fees and prepayment charges
- Missing EMIs: It can hurt your credit score severely
- Using Loans for Non-Essentials: Especially with credit card loans, it’s easy to fall into a debt trap
Final Thoughts: Which Is Better?
If you’re looking for larger amounts and longer repayment options, a personal loan is your best bet. However, if you value speed, ease, and already have a good credit card track record, a loan of credit card can serve as a quick fix.
For business purposes, it’s better to explore structured small business loans that are tailored for long-term growth. You can also explore credit cards designed for businesses here: Top 7 Business Credit Cards for Startups in 2025
Still unsure about which loan suits you best? Visit Millendeal for detailed comparisons, expert advice, and tailored solutions. Whether it’s for personal use, a loan to buy a business, or managing short-term needs, we’re here to guide you at every step.
Get the right financial product today and secure your future!
