Taking loan against credit card:Business Line

Taking a loan against your credit card will reduce your cash withdrawal limit and the overall credit limit of the card for the tenure of the loan.

One big drawback of cash withdrawal against credit cards is the high interest rate charged. At times, there is no free credit period available too. Besides, you need to dole out money in terms of some unnecessary processing charges. To overcome these drawbacks, you can instead consider a loan against your credit card in case you need some urgent cash.

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ELIGIBILITY

There are few basic guidelines which banks follow before disbursing a loan against your credit card. First, you should be an old customer with no default history on your dues. The amount of loan also depends upon your current income and the growth potential. It’s normally above the cash withdrawal limit on the card and below the overall credit limit of the card.

You can always negotiate with the bank if you have a good credit history with no defaults. However, remember that taking a loan against your credit card will reduce your cash withdrawal limit and the overall credit limit of the card for the tenure of the loan.

FEATURES

If you have been a regular payer of your credit card debt with no default, the loan is provided instantly and without any documentation. As there is no documentation, the processing time reduces drastically in the range of 2 to 4 days.

The interest rate on these loans is similar to what you get on personal loans. But they start moving northwards if your credit history is not good. Banks are quite flexible in terms of the repayment options. You can pay more money as and when funds become available to you. If you expect income to improve with time, you can opt for smaller EMIs, which increase in time. But banks generally don’t want to lose out on interest income and hence discourage the prepayment of these loans.

WHEN TO APPLY

Going for loan against credit card is only recommended in case you are in some urgent need of cash – if you do not have enough time for getting a personal loan sanctioned as it requires a lot of documentation and verification. Urgency means a real emergency where you do not mind withdrawing cash on your card too.

In such a situation, loan against credit card is any day a better option than withdrawing cash through your card. On cash withdrawal you pay interest in the range of 30 to 40 per cent while the loan will cost you something around 20 per cent.

Having said that, do note that it is not a better option than applying for personal loan if you have time by your side. Before taking any decision it is advisable to do the cost benefit analysis keeping time as a variable.

Also negotiation with the bank is recommended regarding the interest rate and amount of loan. This negotiation can make a substantial difference to your interest expense.