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A loan with no frills, cheaper too!

April 05, 2010 10:20 IST
For the first time, I paid attention to a call offering a personal loan. They were offering the loan on my credit card from the same bank, on not very difficult terms and conditions. Highlight: It was pre-approved and just needed my nod.

THE PRODUCT

Loans on the credit card are a personal loan, but without the usual documentation and delays, generally associated with it. These are ideal in a scenario where you need money quickly and your cash requirement is higher than the cash withdrawal limit on your card.

And typically, even the fastest personal loan disbursal takes five to 10 days. Obviously, when one needs cash faster and he/she does not want to go through the cumbersome process of documentation. Then, a loan on credit card is a great help. You can utilise it for any purpose, save a speculative one.

Credit card loans are sometimes confused with the cash withdrawal facility offered on these cards. One major difference between the two is the rate of interest charged.

You can take a loan on the credit card for a rate at par or slightly higher than what is offered with a personal loan (18-30 per cent), while the rate for cash withdrawal on a credit card would be 30-40 per cent. Some banks also provide a higher loan amount than the cash withdrawal limit on the card.

ELIGIBILITY

However, credit card loan isn't available for all. Banks provide it to their card holders with high credit standing. If you have been using a particular bank's credit card for some time and have a good payment record, you are most likely to be eligible.

Many banks also have it as a standing offer (HDFC Bank, ICICI Bank, Deutsche Bank and Standard Chartered). For instance. you can call their customer care centre and check the facilities. Check if you are eligible and what is the maximum amount you can borrow.

Both these are dependent on your repayment history and your credit limit. Your payment record as a card holder is scrutinised by the bank when you apply for such a loan.

How does this loan get disbursed? Usually, through a demand draft or a direct money transfer facility to the bank account.

Some banks limit or block the cash withdrawal on your credit card to the extent of the loan you have taken. For the rest, a loan on credit card works like a  personal loan - with a processing fee, repayment in monthly installments and a prepayment facility, often in the range of 3-4 per cent.

So, for your next expense, you may certainly look at this facility.

The writer works with apnapaisa.com

Bienu Vaghela
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