Personal Loan vs Credit Card EMI — Which is Cheaper?

Stuck with an unexpected bill or planning a big purchase? You're probably wondering if a credit card EMI or a personal loan is the way to go. Both seem easy, but one can definitely save you more money in the long run.

It’s a common dilemma. Many people just swipe their card or apply for the first loan they see. But a little bit of comparison can make a big difference to your wallet.

Understand the Basics: Personal Loan

A personal loan is an unsecured loan, meaning you don’t need to offer any collateral like property or gold. Banks give these out based on your income, credit score, and repayment history. They’re great for planned expenses like a wedding, home renovation, or consolidating existing debts.

Interest rates for personal loans usually range from 10% to 24% per annum. The loan amount can be anywhere from ₹50,000 to ₹50 lakh, depending on your eligibility. The repayment tenure can be flexible, generally from 1 to 5 years, sometimes even 7 years.

Example of Personal Loan Costs

Let's say you need ₹5 lakh for a medical emergency. You take a personal loan at 12% interest for 3 years. Your EMI would be around ₹16,607. Over 3 years, you’d pay back approximately ₹5,97,852, meaning an interest cost of about ₹97,852.

Understand the Basics: Credit Card EMI

Credit card EMIs, on the other hand, convert your large credit card purchases into smaller, manageable monthly installments. This is super convenient for immediate needs. Many banks offer zero-cost EMIs for specific products or a low-interest EMI conversion for other transactions.

The interest rates on credit card EMIs can vary widely, often ranging from 11% to 24% per annum. However, credit card outstanding balances (if not converted to EMI or paid on time) can attract crippling interest rates, sometimes as high as 40-48% annually!

Example of Credit Card EMI Costs

Suppose you buy a new refrigerator worth ₹50,000 using your credit card and convert it into a 12-month EMI at 15% interest. Your EMI would be roughly ₹4,514. Over 12 months, you’d pay back about ₹54,168, with an interest cost of ₹4,168.

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Personal Loan vs. Credit Card EMI: The Big Comparison

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