Know When To Opt For Bank Loan And Credit Card Loan; Why Credit Card Loan Emi Is Higher Than Bank Loan Emi For The Same Amount

These days getting a loan is much easier thanks to credit card loans which made life easier by approving the loan amount seconds and gets credited to your account in 2-3 days. But, do you know that credit card loans are costlier than bank loans? 

Just a phone call and you get your loan amount against credit card deposits in very less time. Due to this reason, many people opt for this loan. You need to know when to opt for credit card loan and a bank loan to reduce extra burden in the form of higher interest.

Credit card loan or Bank Loan: 

Though the loan is easily processed, the loan comes with an extra charge which the loan approving authority may or may not disclose to you. The extra charge comes in the form of Service tax at the rate of 15% (14% ST + Swach Bharat Cess@ 0.5%+ Krishi Kalyan Cess @ 0 .5%) of the interest amount which you have to pay in EMI.

Except for the Service tax, the interest rate, pre-closure charges and loan processing fee remains same to that of a bank loan.

For example, 

- You take a personal loan of Rs 1 lakh from a bank at 14% rate of interest to be paid for 24 months.

- Your first EMI would be Rs 4802 ( Rs 1,166.66 is the interest component and  Rs 3635.33 is the principle repayment amount)

- If you take the same loan on the credit card, your first month EMI would be Rs. 4,976.99 which is Rs 175 more than the bank loan. This is because of the service tax levied on the interest amount of Rs 1,166.66.

Remember, the service tax is also applicable when you convert your purchases to EMI. 

When Credit Card loan is useful?

There are some instances when the credit card is useful than going for a bank loan. In general, banks do not process the loan of the loan amount is less than Rs 50,000 and if the tenure is less than one year. In the case when you need a loan which is less than Rs 50,000 and if you wish to clear the loan in less than 1 year, credit card loan can be most preferred even if the charges are higher which could be a small amount if you could re-pay in less than one year.