Enjoying your credit card purchases with reward points and cashback? You can enjoy further with a loan against a credit card. Banks usually offer such loans to customers to increase their asset volume. But does this offer apply to every credit cardholder? Well, that is something to know of. And we are here with our updates. Let’s begin!
What is a Loan Against Credit Card All About?
A loan against a credit card means a pre-approved personal loan offer based on your impressive credit score and repayment track record. In the context of credit cards, repayment track record refers to the pattern at which individuals pay credit card bills. Ideally, your credit score should be over 750 to gain approval for this loan. The score is built on the repayment track. The better the repayment track, the greater the chances to access a loan.
Benefits of Loan Against Credit Card
As this loan is pre-approved based on your strong debt management skills, it comes with plenty of benefits. Let’s learn about the same.
Attractive Interest Rates
A loan against a credit card comes at attractive interest rates, starting from 10.99% per annum.
Flexible Loan Tenures
You can get this loan for tenures ranging from 12–60 months. Some lenders can offer you a repayment period of upto 72 months.
No Documentation
Since the loan is pre-approved by the lender on the back of the credit card repayment track, there’s no need to submit documents to access this loan.
Serves as an Excellent Way to Obtain Emergency Cash
It can be a good way to obtain cash in case you face an emergency. Even if you are pre-approved, you can call the bank officials and enquire about your eligibility for a loan against the credit card. If your credit card repayment track is good, the lender might agree to extend you a loan against the cashless instrument.
Possibility of Zero to Least Processing Fee
Since you are an existing customer of the bank, you might be offered a zero or least processing fee on a loan against a credit card. This lowers your loan acquisition cost.
Mode and Methodology of Loan Against Credit Card
Banks offer this type of pre-approved loan against a credit card in two forms. These are —
Loan Against the Credit Limit
Loan Over and Above the Credit Limit
What is a Loan Against the Credit Limit?
The loan against credit limit is a mechanism by which the lender blocks the amount it lends to individuals. So, if you are approved for a loan worth INR 1.5 lakh over a credit card limit of INR 2 lakh, the lender will block INR 1.5 lakh. You can make credit card transactions on the available card limit worth INR 50,000. In case you have already spent INR 20,000 out of it, your transaction limit comes down to INR 30,000. Once you repay the entire loan EMIs, the lender will restore your credit card limit to INR 2 lakh.
What is a Loan Over and Above the Credit Limit?
Here, the lender does not block the loan amount. So, both loan and credit card transactions go separately. For a loan sanctioned worth INR 3 lakh against a credit card with a limit worth INR 2 lakh, you will need to repay the loan worth INR 3 lakh at the offered interest rates. Whereas you can continue enjoying credit card shopping with a limit of INR 2 lakh.
How to Calculate the Loan Against Credit Card EMIs?
Simple! Use the personal loan EMI calculator that helps compute Equated Monthly Instalments payable over the loan term. You can also check the flow of interest and principal amounts over the loan term.
How Does a Loan Against a Credit Card Impact Your Credit Score?
Credit mix, an important element in deciding one’s credit score, comes into the equation with this. A loan against a credit card is an unsecured debt. Now that you have two unsecured debts — credit card and personal loan — your responsibility as a borrower rises significantly. Any late payment or default here will lower your score rapidly. In contrast, a spotless payment of both loan and credit card dues will raise your credit score significantly, acknowledging your debt management skills.
Wrapping Up
A loan against a credit card is a reward given to you by lenders for your debt management skills. Your habit of paying the credit card bills on time, coupled with intelligent utilisation of credit limits must have impressed the lender. However, paying the applicable EMIs on a loan is a responsibility you can’t shy away from. So, keep a lid on unnecessary expenses and prioritise your needs to ensure a smooth loan and credit card payment experience. For more insights on finance and other important matters, visit zarooribaathai.in.
