Pre-approved Personal Loans vs. Credit Card - Personal Loan Blog - Tata Capital

Should you use your Credit Card or Pre-approved Personal Loans?

May 23, 2017

You have a credit card that has a credit limit of Rs 1.5 lac. Now you need to make a purchase of one item that is needed for household repair. This item costs you Rs 1.3 lac.

You are weighing your options when you find that your bank is offering you a pre-approved personal loan of Rs 1.5 lac.

You now have two options. You can either use your credit card to make the purchase or you can take the pre-approved personal loan. What will you do?

First thing to understand here is that credit card interest rates are very high. At times, these rates can be more than 40%. Pre-Approved Personal loans on other hand are variants of regular personal loans offered to low-risk customers. The perception of low risk is due to their high credit score, good repayment history and income stability. The rates for loans can be between 13 and 20%.

So at least mathematically speaking, it makes sense to go for personal loans.

But there are several other advantages of Pre-Approved Loans too. Since it’s the lender that is approaching you to give a loan, you have a sort of upper hand. In many cases, its also possible to renegotiate the offered interest rates downwards. Then there is another benefit of faster processing of your application. Since the lender already considers you a good borrower and the loan is pre-approved, not much time is required for complete processing of application (it might take just a couple of days).

Now if your requirement is really urgent (like money is needed today itself), then you have no option but to take the personal loan. But if you can wait for few days then going for per-approved personal loans will be a lot cheaper.