If you need a particular amount of money for upcoming expenses then there are a lot of options from where you can get loans. One of them is taking a loan by credit card. But, what is it and when should you use a credit card loan? Here, we have answered everything related to credit card loans.
A credit card loan is one of the best methods for taking a loan in an emergency because it doesn’t take too much time for approval. Apart from it, a credit card loan requires neither an application nor a credit check.
It eliminates some traditional bars of loan-taking ways and allows you to pay the borrowed amount in installments. But before starting to choose a credit card loan, you should check the pros and cons.
Everything About the Credit Card Loan
Basically, a credit card loan is a form of revolving credit where you borrow money as you spend with a credit card. To make you understand more about the credit card loan, we have mentioned more about it below.
What Is a Credit Card Loan?
It is a type of loan that may not be in cash advances but you can borrow money against the limit of your credit card. These act the same as personal loans companies like Citi Flex Loan and My Chase Loan that allow you to borrow money.
The amount of money you borrow totally depends upon the limit of your credit card and once you choose the repayment term, the issuer will transfer the funds into your bank account within a few days.
There are some steps you need to follow to get your loan approval, but once your loan gets approved, the cash will be deposited directly into your bank account. You can repay it in installments over a number of months.
Usually, these loans have a lower annual percentage rate than a normal credit card purchase; and the duration of the loan can be six months to five years.
What Is a Credit Card Payment Plan?
With a credit card payment plan, you can make a purchase and select a plan to pay it in installments or over time. Your payment gets added monthly to your credit card minimum payment due.
Some companies like American Express and Citi’s Flex might help you by reducing charges or interests you are paying and allows you to repay the purchase in installments. However, the payment may come with a fixed monthly fee or interest rate.
When Should You Use A Credit Card Loan or Payment Plan?
Not everyone qualifies for the loan options as they are targeted offers. However, if you qualify for a credit card loan or payment plan, you should use it only in the following cases.
- If you are out of savings or get stuck in an emergency.
- You prefer a streamlined loan and payment process.
- You want a predictable payment and fee structure.
- You don’t qualify for cheaper credit
Apart from it, before you take a credit card loan or payment plan, you should check whether the payment will fit in your monthly budget or not. Also, if you don’t pay the loan in a particular amount of time, a late payment fee may apply.
Drawbacks to Credit Card Loans and Payment Plans
Although a credit card loan may have some benefits, there are also drawbacks of it, such as
- Increase in a credit utilization
- You might have to pay more in interest
- Loan payments may be higher than your minimum payment.
- There is no added Credit benefit.
- You won’t earn rewards.
Credit cards are so easy to use that sometimes you overspend. Also, if you don’t pay the amount of purchasing the item immediately, you should have to additionally pay the interest rate charged on that item.
Alternatives to Credit Card Loans and Payment Plans
If you don’t find a credit card loan or a payment plan right for you, you should try
- Looking for personal loans
- Apply for a low-interest credit card
- Save the money for the purchase
- Bank with a credit union
You can also take loans from friends or family and return to them in a due course of time. It might be embarrassing but if you get the loan, you can overcome the emergency situation you are facing.
This was all about the credit card loans and payment plans. However, before you borrow, try using a credit score app as it will help you in predicting the potential impact on your credit.
Featured Image Credit: Forbes.com
How does a credit card loan work?
Basically, a credit card loan is a form of revolving credit where you borrow money as you spend with a credit card.
Which is worse: Credit card or personal loan?
On a Credit card, you borrow money as you spend, whereas a personal loan provides you a certain amount of money that you have to pay in installments every month. Both credit card and personal loans are good but credit cards have higher interest rates and they charge late fees if you miss a payment.