A credit card is one of the most effective financial tools that lets you borrow money to meet regular expenses or handle emergencies. At the same time, it gives you the freedom to repay the borrowed amount later. In a sense, it gives you a revolving line of credit that you can use to make payments efficiently. However, you must pay the amount back to the card provider before the due date. If that’s not possible, consider borrowing a loan on a credit card. It is a type of Personal Loan against your credit card’s spending limit.
This blog will help you learn more about this funding option and how to take one.
What is a Loan on a Credit Card?
A loan on a credit card is a type of Personal Loan available to a lending institution’s existing credit card holders. The institution offers it against the cardholder’s unutilised credit limit. Here are other things you need to know about a loan against a credit card:
- You can borrow a loan against the unutilised credit card limit instantly.
- The credit card loan interest rate is reasonable, making repayments quite affordable.
- Borrowers can easily repay the loan in installments in a repayment tenure of up to 60 months.
Benefits of Borrowing a Loan Against Credit Card
A credit card loan offers multi-faceted benefits as listed below:
- Quick Approval and Disbursal: Leading lending institutions like ICICI Bank approve and disburse these loans quickly without involving extensive documentation.
- Direct Funds Transfer: The amount you borrow against the credit card gets directly transferred to your bank account in the same or another bank, making it easier for you to use the loan amount.
- No Collateral Requirement: Unlike many traditional loans, loans against credit cards are unsecured. It means you don’t need to pledge any security, guarantor, or collateral against the loan amount you borrow.
- Reasonable Interest Rates: The credit card loan interest rate is reasonable, making these loans economically viable.
- Instant Funding Access: You receive the loan disbursal instantly upon applying.
- Straightforward Application Process: You can complete the application online in simple steps.
- Easy Eligibility Criteria: A loan on a credit card has a relaxed eligibility criterion compared to other loan types. Your loan eligibility largely depends on your credit history and the available credit limit on your card.
- Minimal Processing Fee: The processing fee is minimal for a loan on a credit card.
- Easy Repayment in Installments: You may repay the loan in easy installments in a repayment term of up to 60 months.
Who Can Borrow a Loan on a Credit Card?
Most importantly, you must own a credit card and have a strong repayment history with the credit card provider. If you need money for an urgent or unforeseen expense, you may go ahead and borrow a loan on a credit card. Here are a few eligibility conditions you must fulfill before applying for a loan against a credit card:
- You should have a good credit score.
- You must have paid your credit card bills on time.
- You must have a good track record of expenditures on your credit card.
The final decision to approve your loan depends on the bank’s internal policies. Before applying for a loan on a credit card, visit your bank branch or use net banking or mobile banking to review your credit history carefully. Moreover, remember once you borrow a loan amount higher than your credit card limit, you may not be able to use the card until you repay the loan.
Documents Required to Borrow a Loan on Credit Card
In most cases, the providers of such loans do not ask for any documentation from the credit card holders. It is because when you borrow a loan against a credit card, you must be an existing customer of the company, and they already have your documents in their records. Moreover, until then, they must have gained an idea of your spending and repayment habits. Their decision to approve your loan largely depends on how you have handled your credit and paid your credit card bills in the past. However, the credit card company may ask for a few latest documents to determine your latest credibility and repayment capacity.
Stepwise Procedure to Take a Loan on a Credit Card
Here is how to borrow a loan against a credit card:
- The first and most important step is to check if your credit card company offers a loan against your credit card. You can check your company’s net banking, or mobile banking or call their customer support department to obtain this information.
- Before applying for a loan, carefully read their terms and conditions, including the processing charges, repayment terms, interest rates, hidden charges, etc.
- Evaluate your expenses and decide upon a loan amount within your pending credit limit. A significant outstanding balance on the credit card directly impacts the loan amount you may borrow.
- Review the loan terms and conditions carefully and apply for a loan on a credit card through the lending institution’s website or app.
- While most credit card companies do not require any documentation for verification, some may ask for your income, address, and identity proof.
- After verifying your details, the company will approve your loan and credit the funds directly into your bank account. Some reputable finance companies, like ICICI, also credit the loan amount in any other bank account according to your needs.
- According to the repayment tenure you select, ensure timely repayments to improve your credit score and avoid additional charges.
A loan on a credit card can be a valuable financial tool if you need quick funds for an emergency. It is a type of Personal Loan you may borrow against the outstanding limit on your credit card. Moreover, this loan type has several other benefits, as mentioned above. However, before borrowing a credit card loan, review the terms and conditions carefully and consider the credit card loan interest rate and repayment terms that suit your repayment capacity.
