Facts to Know About Loan Against Credit Card Limit

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30 MAY, 2022

We have often discussed the benefits of having a credit card. Getting access to instant funds either through cash withdrawal or a loan against a credit card are a few of the prominent advantages that a credit card offers. These are perfect options to go for when one requires immediate cash. Let us understand the concept of a loan against a credit card.

What is a Loan against Credit Card?

When you get a credit card, you get a specific pre-approved credit limit that can be utilized in one month. The cardholder can either buy things up to that limit or even take a loan against the credit card. For those in urgent need of money, some of the best credit cards in India offer this facility. Banks allow you to take a loan against the credit card limit that has been approved. Once the financial institution approves the loan request, the limit is credited to the account. This loan is just like any other loan as the bank charges a certain interest rate and one repays it through EMIs or equated monthly installments over a definite period.

Features of loan against credit card

Each bank has a different loan scheme when it comes to a loan against credit cards. However, a few features remain the same:

Pre-approval and quick disbursement: Most credit cardholders get credit card offers such as pre-approved loan offers against credit cards. Also, since they are associated with the bank, the documentation is already available. Such a loan is processed and disbursed swiftly, without any application or document verification process.

Increased affordability: The EMI schemes made accessible by credit card issuers, give cardmembers the ease to break their high-value purchases into affordable installments. This frees them from a high financial burden in one go

Balance transfer: A few banks also give the option of taking a loan against another issuer’s credit card. This is done via Balance Transfer on EMI where the borrower can transfer the remaining balance on the other credit cards to a single credit card and pay the EMI. This consolidates debt and helps in better financial management.

Loan amount: In most cases, the loan amount is limited to the credit card limit. However, some issuers give the option to take a loan over and above it.

Eligibility for Loans against Credit Card: Loans against credit cards fall under the unsecured loan category. This means no collateral or guarantee is needed to avail of such a loan. Due to the risky nature of this loan, banks offer it to exclusive cardholders. Issuers follow a stringent eligibility qualification when it comes to this type of loan. Cardholders who have a commendable credit history and a solid purchase and repayment pattern are likely candidates to apply for such a loan.

How much loan can you get against a credit card?

The quantum of the loan generally depends on the cardholder’s credit limit. Issuers prefer giving a loan within the limit that has been set by evaluating the card holder’s creditworthiness and credentials. However, there are a few banks that go beyond that limit. This loan amount is not blocked against one’s credit limit as in the case of an EMI.

What is the right time to apply for a Credit Card Loan?

The ideal time to apply for such a loan is when you are in dire need of cash and are short on time. This is because these loans do not require documents or a detailed application procedure that takes up time, as opposed to getting a loan sanctioned from scratch. Also, this is better than withdrawing cash on a credit card as the interest rate on that is extremely high.

You can get a loan of up to five lakhs with most banks credit card at a nominal interest rate. The repayment tenure ranges from anywhere between six months to four years. Even if you do not have an account with us, the loan amount gets instantly credited to your bank for those who have a great credit score, steady transaction patterns, and a default-free repayment habit are more likely to be considered for loans against credit card.

FAQs on Loan against Credit Cards

Q.1. How does a loan against a credit card work?

Technically swiping your credit card, acts as a short-term loan. In essence, you are borrowing, interest-free from the issuer. Similarly, a cardmember can avail of a loan based on their credit limit at a certain interest rate for a longer period.

Q.2. Is every cardholder eligible for a loan on a credit card?

No. Eligibility criteria vary from issuer to issuer and are quite stringent when it comes to such unsecured loans. This facility is offered to a selected few with high creditworthiness and good repayment history.

Q.3. Are there any disadvantages of taking a loan on a credit card?

A higher rate of interest as compared to a regular loan and significant penalties if the debt is not repaid on time.

Q.4. What documents will I need to submit to avail of a loan against a credit card?

Since you are an existing card member and your loan is pre-approved, the issuer will already have your information. No additional documents are required.

Q.5. Is a loan against the credit card the same as withdrawing cash using it?

There are two key differences between withdrawing and taking a loan using a credit card. First is the limit which is prominently lower when you withdraw cash. Second is the rate of interest, which tend to be higher when you withdraw cash than taking a loan against a credit card.

Q.6. Apart from the interest, are there any additional charges when I take a loan against a credit card?

A processing fee may be charged, sometimes there are offers where you may be exempted from it. In case of foreclosure of this loan, the bank levies a pre-payment penalty.