Personal loan better option for paying debts than credit card

At the time of medical emergency in her family in January 2007, Nisha Naik used her credit card to clear the hospital bills which amounted to Rs 1 lakh. In such a situation anybody facing such a situation could have done the same.

She being family’s only earning member with no assets to fall back upon, she had to depend on her salary to payback the debt. She had planned to pay off the debt in the following two months, but things did not work out as planned and she ended up paying the 5% minimum due amount till October 2007. By the time she could realize that the money she had been shelling out every month formed mainly the interest component and she still owed the credit card company the bulk of the principal amount nine months had passed. On knowing the reality she quickly applied for a personal loan to clear the credit card dues.

It’s anybody’s conjecture that she would have saved on a lot on her interest outgo had she chosen for a personal loan earlier, which is surely cheaper than credit cards. Says My Financial Advisor director Amar Pandit: “Interest rates in case of personal loans are much lower than credit card loans; generally speaking, personal loans are at least 50% cheaper than credit cards. Depending on the category of employer or whether the individual is self-employed, interest rates could vary from 12% to 23% per annum”.

The other option could have been personal loan on credit card (PLCC). “On the basis of card transaction history, we can also provide a personal loan on the credit card itself,” informs Sachin Khandelwal, head of cards, ICICI Bank. But this carries a processing fee of 2%, as well as foreclosure charges of 3.5%. On the monthly statement it is shown as a transaction entry separately till it’s paid off. This type of loan carries a rate of 16-20% pa whereas credit cards typically have an interest rate of 36-40% pa. There can be variation on interest rate on personal loan from 18% to 21% pa.

“Our recommendation is that if a customer finds that the outstanding amount on his/her credit card is not being cleared in a couple of months, he/she should choose this option. However, if such options don’t help in clearing dues within 12 months, then a personal loan is strongly recommended,” asserts Mr Khandelwal. An important point to remember is while applying for a personal loan the minimum tenure is 12 months and the minimum loan amount is Rs 50,000 (the processing fee for personal loans is 2%).



Usually people make a mistake of not thinking in terms of replacing the high-cost credit card debt with a low-cost one. Though credit cards can be easily acquired and boast of high convenience value, but one should remember that they are strictly meant for short-term purposes and stretching the repayment term will only lead to headaches for you. Hence, set a deadline after which you would start looking for less expensive loans. If you find yourself in a situation of not being able to pay off dues in, say, two months after borrowing on your credit card, then you should opt for cheaper alternatives.

Adds Mr Pandit: “Credit card loans are the costliest forms of loans and I would certainly recommend a person to opt for personal loan. However, even before I do this, I will explore if the person has investments and if he/she can get an overdraft against mutual funds and blue-chip stocks. Generally, this is available in the range of around 11% and should be preferred to personal loan. Same goes for overdrafts on fixed deposits, if any. Here, you pay the interest only for the period the OD is utilised”.

However, since Nisha and her family owned no assets as such, what are the other options that she could have exercised, apart from personal loan, to ensure that her interest outgo was lower? “These days, credit cards offer free rollover for three months, so she could have explored the option of rolling the credit over for three months (without any interest),” replies Mr Pandit. The credit card space has several schemes. For example, banks like ICICI have an option of converting a credit card transaction into an installments-based one — the EMI option. This usually entails a processing fee of 2-4% and the interest rate varies from as low as 0-18% pa.

You can also go for balance transfer schemes, wherein you can transfer the outstanding amount to another bank’s credit card. Under this scheme on the new credit card, for a particular period, you either don’t have to pay any interest or you may be a charged a nominal rate of interest. You can also use such schemes for debt consolidation— you can transfer the credit outstanding on several cards to one card that carries the lowest rate of interest, thereby reducing the interest payable. If you are caught in a situation similar to that of Nisha, it is high time you switched over to schemes that don’t burn a huge hole in your pocket.

Secured Personal loans have repayment interval longer

Do you want to take a loan; you can find many lenders who are ready to give loan. Personal loans can be secured and unsecured types.

In secured personal loans guarantee is offered to the moneylender and the time period of repayment of loan is longer. In this the defaulter can borrow a large loan volume. Therefore, nation who have recompense in real estate or who own houses can take secured loan. But one should not forget the fact that the house is used as collateral and can be taken over by the owner in case the insolvent is incompetent to pay back the loan.

Want to take loan which one –Personal or New line of credit

No matter at what position you are, the time of year, holidays or not, the need for additional money may arise.

There are several ways to get extra money but the two of the most common ways include opening a new line of credit and taking out a personal loan from a bank.

Before understanding which is better between a personal loan and new line of credit, it is important to define the two terms as they are closely related. A line of credit is where you have an agreement with a company to borrow a specific amount of unsecured credit for a specific period of time. This amount of money is available for use at any time as long terms of the agreement are met.

Personal loans are money given by the bank on credit. There is no security given. The amount that is given to you is based on your credit rating and they are usually paid off in a short period of time (two to three years). You can use personal loans for anything that you need it for such as debt consolidation, vacations, medical bills etc. Personal loans have fixed rates and monthly payments until they are paid off.

Let’s see what is the advantage of one loan over the other?

A personal loan provides the total sum of money up front, which has fixed interest rate attached to it. You will be expected to make a payment each month until the loan has been completely repaid. The time period of the repayment of the loan is fixed depending on the length that you and your lender agree upon. The interest rates attached to personal loans are generally much higher than a line of credit. This means that you will pay more interest overall.

Opening a new line of credit has many differences. First and foremost, a new line of credit will give you money as you need it. You get flexibility in spending while providing money in emergency situations. In this the interest rate associated with new credit is adjustable. You have to pay interest on the amount of money you have used. The interest rate keeps varying with prime rates. So it might go up a half a point or so and then drop again. This means that a payment may be a little bit higher one month and then lower the next.

Let’s see the disadvantages related to personal loan.

First of all, when you take personal loan you get money once. This means if someone requires additional money, he or she will have to apply for another loan from a bank or credit union.

Secondly, in personal loan there is no option for tax deductible whereas in many cases a line of credit can be.

New credits do have disadvantages as well.

Interest rates are adjustable, there are no fixed minimum payment and can vary even month to month. The discrepancy of knowing what is owed can be a problem if living on a tight budget.

Now you can decide from these two which one you want to take depending upon your financial needs and financial situation.

For small financial requirements Personal loans are the best option

The festive season is the most expensive time and Christmas celebration have started. Many people spread their festival expenses over several months this is possible with the help of loans available in the market.

Many types of loans are available in the market to choose from. If you want to take loan for a limited amount then go for personal loan. For various financial requirements many people take this type of loans. During Christmas people take these loans to go on vacations, buy gifts for family and friends and decorate their homes. In case your requirement is more and personal loan is not enough then you can guarantee your home to get a big loan amount.

Sanction of loan amount depends upon many things. Before giving you a loan a lender first verifies your credentials and then takes his decision after considering many aspects. Your creditworthiness is checked from credit reference agencies. These agencies have a record of every loan transaction and also provide individual credit ratings. You just pay a small amount of fee to get your credit rating. It will help you in the loan process if you know your credit rating in advance.

If your requirement is big then go for secured personal loans. It can be a home improvement on large scale or buying another home or buying an expensive vehicle. In secured loan the rate of interest is also low and the repayment period tends to be longer than personal loans. These loans are available with high street banks, online lenders and building societies in the UK. You have to fulfill eligibility criteria to apply for a loan. You have to be above 18 years of age and a UK resident to apply for any type of loan. It is better to compare loans offered by lenders as nowadays there are many lenders and it will be if you compare loans before signing any particular loan deal.

Improve credit scores and ratings with fast personal loans

Individuals are able to get various possibilities for seeking money through fast personal loans for a variety of their financial needs. Fast personal loans can also help in improving credit scores and ratings. There is no demarcation, available to anyone and everyone. Personal information is all that must be provided in order to be approved. You can get help in debt also. Consolidating debt into one monthly payment will save the consumer time and money.

An individual gets an opportunity to improve its credit rating. At times the bad financial decisions lead to poor or blemished credit rating. So it becomes very important to be aware of the credit score, especially when purchasing homes, vehicles, or taking out any type of financing. By receiving the fast personal loan and making payments on schedule, a credit score can be improved. Fast personal loans often can be completed even with poor credit history.

Only little information is to be provided to get finances. As the loans are not of great amount personal information will be enough to get an approval for a fast personal loan.

At times companies dealing with fast personal loans will require credit history, but poor ratings will often still be approved in order to assist the borrower in improving that score.

Debt consolidation is an excellent reason to apply for this type of financing. Individuals get the opportunity to pay off their credit card bills, loans, and a variety of expenses with fast personal loans in turn for monthly payment toward the payments. This will help the customer to save money because the interest rate on credit cards can often be very high. Loan approvals that offer lower rates will allow the consumer to save money. Whenever dealing with money matters remember that Proverbs 13:11 says "Wealth gotten by vanity shall be diminished: but he that gathereth by labour shall increase."

With this the borrower gets many opportunities. If you have increased credit score then fast personal loans is an excellent reason to apply for. These loans are very attractive to consumers because of the option of providing very limited amount of personal and financial information. Also, there are possibilities of receiving finance in order to consolidate debt that may have mounted over a period of time. With many providers, this type of financing can be acquired with little effort on the part of the consumer.

Personal loan can help you pay your debts

Today people are having hard time in making savings. Some of them are able to do savings and for some it is difficult as a result you get deeper and deeper into debt.

Personal loan can be used for consolidating credit card debt. By doing this there is one advantage it is that you will have only one payment and there are usually no late fees if they are they are not as large.

The interest rate is not raises on a personal loan when you don’t make a payment either. Therefore it is important to make sure your payment is with in your budget. You do not want to have a bad mark on your credit.

But there are certain priorities to remember when you are deciding which bills you are going to pay. Some will have to wait until the next pay check.

Your mortgage and home insurance should be your first priority in the list. Your house is what provides you with shelter. It is also good for your credit to make sure your mortgage payments are always on time.

If you have your own house then there is property tax that comes along with it. Although you have taxes taken out of your pay check that does not mean that you will have enough when it comes time to pay them. So put money aside to cover taxes that you will have to pay.

On the second position comes the car payment. Transportation is very important. It would be difficult to get back to and from work.

When buying a car better to go for the one which fits in your budget easily. You can look for a used car that is still in great condition.

Most people have credit cards now days. The minimum payments can really add up. Credit cards have late fees and if the payment is not made in time they will raise your interest rate, normally to 29.9%.

When you know that your interest rate is going to be raised. Look at which card has the smallest balance on it, 29.9% of $100 is better then on a $1000.

Another thing to remember is that most credit card companies do not report your late payment to the bureau until it has been 30 days late. So if you pay it 10 days late you will be ok with your credit report. Though you will still have a late fee and the interest rate could still be raised.

When deciding which card to pay first then look if there is a grace period on any of your cards. You can save those cards for the next pay check.


The last thing to pay is your utilities. If you explain about your situation to gas and power companies they will work out for you.


The cable and phone bills are not as important. These are things that we can survive with out. If the phone and cable is shut off it will not affect your well being.

Improve your credit score with small personal loans

Thinking of improving your credit score then take small personal loans. If you take big loan you can risk not being able to repay it and defaulting on the loan which would further ruin your credit score.

So go for small personal loans. The small personal loans are not expensive and they are easy to afford. To improve your credit score you can use personal loans and the credit improvements will be done at low cost.

It is easy to get small personal loan you need to apply for a small personal loan; it doesn’t necessarily have to be a short term loan. The repayment of the loan should be continuous to maintain efficiency. However, you should Compare personal loan rates just a couple of hundreds and repay it in several installments. Each installment will be recorded into your credit report as a successful financial transaction and your credit history will start showing a perfect repayment behavior.

DCB to cut share of personal loan and get into retail segment

Development Credit Bank, the small private sector banking group, has planned to cut the share of personal loans in its credit portfolio to diverge risks.



Instead it will, get into the commercial and construction equipment business, which is a secured portfolio in the retail segment.



The bank will be raising the share of retail assets comprising commercial vehicles and construction equipment in total advances from 45 per cent to 55 per cent. The large and mid corporates currently is having 55 per cent share in total loan base. The total advances at the end of September 2007 stood at Rs 3,195 crore.



There are more chances of more number of defaulters in case of personal loans. The bank saw a minor rise in net non performing assets in the first quarter, earning out of personal loan segment.



The managing director and chief executive Gautam Vir said, “We plan to bring down the share of personal advances in total retail loans from 47 per cent to 35 per cent over the next financial year.”



As of September 2007 the personal loans stood at Rs 713 crore, while commercial loans were Rs 279 crore. The bank has already stopped the low ticket loan below Rs 50,000, as it have higher delinquencies space.



It has tied up with HDFC for steady growth and market its home loan products.

“This (home loans) is not our area of expertise (which is volumes business). The bank will focus on origination and servicing customers,” Vir said. This will help in boosting banks other income.



It has applied to Reserve Bank of India for permission to open 50 branches to expand its network. Currently DCB is having 74 branches, predominantly in the western region of the country.



The western region comprises Maharashtra, Gujarat, Goa, Andhra Pradesh, National Capital Region and Rajasthan.



“We will continue to expand the region (western), where the growth is high and our brand is known. We will also open branches at SME clusters outside the western region”, he said.