What is a Loan on a Credit Card? How does it Work?

In just a matter of a few years, we have gone from a situation where there was little to no access to credit facilities to overflowing credit options. Of late, getting loans and other credit facilities has become so easy that almost anyone can apply for it and get it sanctioned almost instantaneously.

If you’re looking for a quick loan, one of the best options available to individuals such as yourselves has to be – loan on a credit card. Yes, you read that right. Your credit card doesn’t just allow you to make purchases on credit but also lets you borrow loans too. Wish to get to know more about credit card loans and how they work? Continue reading.

What Is a Loan on a Credit Card?

As it is quite evident from the name itself, a loan on a credit card is just that; a loan that you avail using your credit card. If you have a good track record of having used your card responsibly and paying all of the dues on time, banks and other financial institutions generally allow you to avail of loans using your credit card.

Now that you’re aware of what credit card loans are, let’s take a quick look at a few of the features and benefits that you get to enjoy.
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1. Credit Card Loans Are Preapproved

A loan on a credit card comes pre-approved by the bank or the financial institution. This effectively means that you don’t have to apply for a loan and wait for the bank to process your application and then decide on whether to give you the loan. Instead, you can get the loan disbursed almost instantaneously to your bank account.

2. Credit Card Loans Are Unsecured

One of the primary advantages of availing of a loan using a credit card is the fact that they’re unsecured. This means that you don’t have to pledge any of your assets as collateral to get a credit card loan.

3. Reasonable Interest Rates

The interest rates on the loans are also very attractive. They’re usually on par with personal loans; maybe sometimes even lower, depending on your credit score.

4. Customizable Repayment Tenure

Generally, credit card loans come with a flexible tenure ranging from 6 months to 60 months. You can choose the repayment tenure that you are comfortable with, without having to take on an unnecessary burden.
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How Does a Loan on a Credit Card Work?

Want to know how credit card loans work? Here’s an example that can help you understand.

Assume that you have a credit card with a credit limit of Rs. 2 lakhs. You use your card responsibly, are prompt when it comes to repaying all your dues, and you ensure that you pay the entire outstanding amount and not just the minimum amount. Also, you have a very good credit score and credit history too.

Taking all of this into consideration, the bank offers you a pre-approved credit card loan of Rs. 1.5 lakhs, which you can avail of at any point in time. Now, say that you’re in urgent need of some funds. You choose to avail of a loan on your credit card and proceed to borrow Rs. 1 lakh at an interest rate of 14% for a tenure of 24 months.

The amount that you borrowed as a loan will now be blocked on your account, reducing your credit limit from Rs. 2 lakhs to Rs. 1 lakh. Each month, you will have to repay a specific amount as EMI, which will be charged to your credit card automatically.
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How to Apply for a Credit Card Loan?

Sounds interesting, right?

Let’s now take a look at how you can apply for a credit card loan.

1. Log into your bank’s net banking portal or credit card portal.
2. Navigate to the credit cards section.
3. Look for the loan on the credit card option and proceed.
4. Enter the details of the loan such as the amount of the loan and the tenure. The rate of interest will be automatically displayed depending on your choices.
5. Verify the loan details and confirm to avail of the loan.
6. The loan amount will be credited to your bank account instantly.

Now, the application process specified above is to give you a general idea of what it would take to avail a credit card loan. Depending on the institution whose credit card you have, the process might vary a little.
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Conclusion

As you may have realized already, a loan on a credit card is only offered to those who already possess a credit card. If you don’t have one already, don’t fret. You can apply for one within just a few minutes through the Finserv MARKETS app. Download the app on your smartphone right now and check out the various credit card options and offers that are currently available.