Taking a loan against your credit card? Here are some things you must know

Loan against your credit card is the quickest way to avail of credit that can help you meet your short-term financial needs. This piece will help you make an informed decision.

Taking a loan against your credit card? Here are some things you must know

The use of credit cards has become widespread, as they offer the convenience of cashless payments even on the go. You can obtain loans against a credit card, which can be repaid in monthly instalments. You can also earn attractive discounts and get benefits and rewards.

Features and benefits

The first and the most important thing to remember is that a credit card is a form of unsecured borrowing. As with any kind of personal loan, there are risks attached. If the amount borrowed isn’t repaid in full each month, you will be charged interest. If you aren’t careful, things can quickly spiral out of control. Such borrowings should therefore only be seen as a short-term emergency measure.

There are different categories of credit cards that you can choose from based on your needs – business credit cards, credit cards for women, travel credit cards, cashback cards, platinum credit cards etc.

Taking a loan against your credit card? Here are some things you must know

Some of the benefits of borrowing against your credit card are:

  • Some credit cards allow a ‘cash-on-call’ facility, provided you haven’t exceeded your credit limit. Interest is charged from the day you withdraw the money
  • Instant cash, whenever you need it
  • Quick disbursal and fast processing
  • No documentation required
  • You can apply for it from anywhere, at any time
  • You can repay the loan in monthly instalments, which will appear on your credit card statement
  • Such loans have flexible durations that can vary from 12 to 60 months, the tenure of which can be chosen to suit your own financial situation

For choosing a loan against a credit card, some credit cards provide 0% periods, which means you can benefit from interest-free loans. For it to be truly ‘interest-free’, you will need to clear the balance before the offer ends, or you will be charged interest on the entire amount outstanding.

Banks such as HDFC, HSBC, Citibank, and ICICI offer loans against credit cards. HDFC offers Insta Loans and Insta Jumbo Loans, both of which are easy to apply for and usually come pre-approved, and the amount is credited to your savings account within 60 minutes.

The pitfalls 

As with any loan, there are some limitations:

  • As far as possible, avoid making cash withdrawals against your credit card. Interest on such borrowings is charged from the date of actual withdrawal and is higher than that for personal loans.
  • Interest rates may also vary depending on the kind of credit card you have – Silver, Gold, or Platinum.
  • Loans are usually given only to those who have a savings account with the bank that’s issued the credit card.
  • The nominal interest rate on credit cards is meaningless. Always check the Annual Percentage Rate (APR), as this is the actual amount you’ll be paying.
  • The APR for purchases, cash advances, and balance transfers could also vary from bank to bank.
  • If you are late with payments or have violated other terms of the cardholder agreement, the APR charges may be higher than otherwise.
  • Prepayment of credit card loans may carry penalties, either at a flat rate, or a certain number of months’ interest. You should compare the penalty amount against the overall interest you will save. Often you can prepay a credit card loan after a minimum period of the loan tenure. Read the agreement carefully or talk to the credit card company for clarification.

The practice should always be to live within your means. However, life takes strange turns every now and then, leaving you in tricky financial situations. If these require a short-term emergency financial injection, a loan against your credit card can be the solution. However, you should try to avoid making this a habit. Interest and other fees can pile up surprisingly quickly for delayed payments, especially if you choose only to pay off the minimum amount every month.

Outside of your bank account, do you know where the most significant impact will be felt? Your credit score! This could prove detrimental when you apply for a loan that really matters, such as home or car financing. So, think hard before you leap, as your life just might take a turn in future that you can’t back out from. 


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