Credit card loans are a specific type of personal loan you may receive against your credit card. It is an instant mode of attaining a loan and is quite ideal for situations regarding financial emergencies. Nonetheless, the interest rate on credit card loans is much higher than on personal loans.
Various charges will be applicable, starting from processing fees and similar charges. That being said, before opting for a credit card loan, you need to get to know everything there is to credit card loans.
Here is a complete guide on how credit card loans work, whether you should avail of them or not, and the eligibility criteria to go through beforehand-
Understanding A Credit Card Loan
A loan on a credit card can be understood as a pre-approved loan that doesn’t essentially require you to undergo comprehensive documentation to attain a loan. Since it is an unsecured loan, you don’t require any collateral or security to receive the loan amount.
Thus, this is ideal for every individual looking for an emergency loan as they can avail of one without showing any collateral or crucial documents. With limited paperwork and maximal flexibility for processing the loan, it is assured that you can attain a loan instantly.
How Do They Work?
The most unbeatable benefit of credit card loans is that they allow you to attain an emergency loan for paying your EMIs, school fees, medical bills, vacations, and other elements. Moreover, the loans are instantly received. What makes this loan more feasible in situations of emergency is that you don’t have to go through extensive paperwork.
While the interest rates of credit card loans may be on the higher side, they offer many benefits to compensate, including minimal documentation, loan repayment flexibility, instant loan availability, and so on. You can get the loan amount credited into your savings account with minimal steps and procedures. If you don’t have a savings account, on the other hand, the money will be transferred through a demand draft or NEFT.
Eligibility for Getting a Credit Card Loan
Most credit card loans do not need any collateral or security deposit as they are unsecured. Thus, only a specific group of cardholders are eligible for the loan. Banks generally have a strict eligibility policy when offering credit card loans.
Firstly, remarkable credit history is critical for being granted a credit card loan.
The repayment pattern and purchase history play a vital role in your eligibility to receive a credit card loan.
Here are the main elements when it comes to the eligibility criteria for availing of a credit card loan.
- Age- Most banks offer loans to individuals aged above 21.
- Annual Income- Your annual income is vital in determining your eligibility for a credit card loan.
- Strong credit history- Additionally, cardholders must have a solid CIBIL score and a great credit history for availing of a credit card loan.
- Credit Utilisation Ratio- Banks will also analyse the credit utilisation ratio before granting a loan.
- Credit card loan application- Customers that may tend to apply to various credit card agencies for a loan may often be seen as too hungry to avail of a loan and may thus be rejected. It is necessary to have at least six months of gap when applying for loans.
Benefits of a Credit Card Loan
- Most loans on credit cards don’t require comprehensive document submission or collateral for attaining a loan, as these loans are unsecured and pre-approved.
- The process of applying for and availing of a loan is seamless, and generally, you’ll receive a loan quite instantly.
- A credit card loan can easily be converted into a flexible monthly EMI instalment.
You can avail of a credit loan based on the credit limit you might have. Different banks have different eligibility criteria for granting loans to applicants. Make sure you know these requirements and thoroughly review the criteria when applying for a loan to improve the loan-approval chances in the long run.