Short-term loan or a credit card: which is better?

Clear your confusion about credit card and short term loan.

Short-term loan or a credit card which is better

When you want to manage your cash flow while not wanting to keep your assets as collateral, it all comes down to two choices: a credit card or a short-term personal loan. Personal loans account for a sizeable 28% of the total bank credit. Still, there are over 52 million credit card users in India. While each has its own advantages and disadvantages, the right choice would depend on your situation or lifestyle.


Credit card 

Short-term loan

Rate of interest

APR (Annual Percentage Rate) - 36% to 42%

Interest rate per month - 3.35% to 3.5%

9% to 11%

Repayment tenure

Upto 2 years

Upto 5 years

Type of requirement

When you need to pay via card or any online requirement

When you need funds


Cashback, lounge access, reward points, etc.


Related: Personal loan or Credit card loan: Which one should you opt for and when?

When should you opt for a credit card?

  • No Cost EMI: Credit cards are great for you if you regularly shop for products online. With a no cost EMI option available on almost every product, it gets hassle-free for you to purchase an item by paying monthly instalments at zero extra cost. For example, you can get a Macbook Pro worth Rs. 80,000 without paying the price upfront.
  • Reward Points: Most credit cards offer reward points and other benefits like free lounge access at airports. This is something worth considering if you are a frequent traveller and need a comfortable place to relax while your flight arrives.
  • Interest-free credit: Unlike short-term loans, credit cards provide you an interest-free credit limit up to a certain amount every month. You can pay all your house bills even before you get your paycheck. Once you receive your salary, you can pay back the pending amount.

Related: Have you ever wondered how a credit card company makes money?

When should you opt for a short-term loan?

  • When you need hard cash or a lump sum: Short-term finance is more practical when you need a large amount in cash for upfront payment. Lenders transfer the loan amount directly to your bank account in one go, which you can spend right away through online transfer, cheque, and even cash withdrawals.
  • When you need more time for repayment: Short-term personal loans have a longer tenure, which allows you more time for repayment. Short-term credit can also be customised to extend the length of repayment schedule to as much as 12 months.
  • When you have a healthy credit score: Since short-term personal loans are unsecured loans and do not require collateral, they are not easily granted unless you have maintained a good credit score. Some lenders require applicants to have a minimum salary for personal loan. If you have a healthy credit score, going for a personal loan will be smooth and in case you miss a payment, personal loans have much lower interest rates compared to credit cards, which makes the situation more bearable when you are short of funds. 

The pointers given above should help you take a call depending on the situation you are in and how much money you need. Need money instantly? These loans can help


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