Loan Against Credit Card: Everything You Should Know

You can get a loan on just about everything these days: gold, fixed deposits, shares, etc. Of all the loans available, loan against credit cards is also rising in popularity, thanks to its easy availability. While it isn’t an uncommon phenomenon, there are a lot of technicalities involved. In this page, we will talk about all the things that relate to a loan against a credit card.

Loan against Credit Card: What it is

As the name suggests, a loan against credit card is a loan that can be taken against a credit card. It is very similar to a personal loan. In that, this too is an unsecured loan and doesn’t require any form of collateral from the borrower. It also comes with a fixed tenure and rate of interest for the benefit of the borrower. Almost every bank that issues credit cards offer this type of loan provided that the minimum requirements are met.

Loan against Credit Card: Eligibility criteria

In order to get a loan vs credit card, you are required to meet a specific criteria, which is standard for pretty much every bank and other financial institutions. This is as follows:

• You are required to have a credit card from the bank you are looking to get the loan from. There are some institutions that offer loans for new customers as well.
• You need to have a solid credit score as the lender will go through your history to check your payments.
• You need to have a well-paying job (which goes without saying) to show that you can service the loan EMI amount.

Loan against Credit Card: Things you should keep in mind

Here is a list of things you need to keep in mind when opting for a loan against credit card.

• Defaulting on payment will be seen as loan default

As this is a loan just like any other availed against a credit card, a default on payment will be seen as a loan default. While defaulting on credit card payments can be sorted out with a bit more fiscal discipline, defaulting on a loan against credit card can have grave consequence. It can send your credit score spiralling down to new lows and resolving the issue can take much longer than expected.

• Choosing the tenure is up to you

A loan against credit card gives you the flexibility to choose the tenure you are comfortable with. Also, the maximum tenure such a loan can get you is up to 24 months for a vast majority of banks. There are, however, a few of those that offer a longer tenure of more than 24 months, which can be found out through a cursory search online and a call to the customer care of the bank in question.

• Pre-closing your loan is an option

You can pre-close your credit card loan at any time before the actual tenure ends. Doing so, however, will require you to pay the necessary pre-closure charges with some banks even charging penalties as much as 4% or even higher in some cases.

• You will need to pay the processing fees

As this is primarily a loan, availed against your credit card, you are required to pay the processing fees and all the other charges that come with it. Some banks charge rates as much as 2.5% and can go up to as high as 5% of the loan amount. Ask the lender and get the official figures before applying for a loan.

• Late payments can hurt your chances

Most banks also offer top up loans against credit cards for the benefit of their customer. If you are late to make a few payments, there are definite chances wherein you will hurt the chances of getting a top up loan. This can happen as late payments will have an impact on your credit score and your creditworthiness will take a hit. So, avoid making late payments at all costs.

• Credit card interest rates apply

Let’s say you have taken a loan for about 60% of your credit limit available on your card. The remaining 40% will incur the usual credit card interest rates if you make a transaction and fail to repay the amount within the interest-free period set by the bank. Being timely with your payments will help your cause a great deal.
A loan against credit card can be an additional way to get the much needed funds in times of financial emergencies. But, you should always keep it as a last resort as such a loan can be a tad bit more expensive than your typical personal loan as it comes with higher interests.