When you’re thinking about a big expense — like a medical bill, a gadget, an unexpected family expense — two options usually come to mind. Take a personal loan from a bank, or convert the amount into credit card EMI. Both look similar on the surface: fixed time period, fixed monthly expenses, that’s it. But one of them is almost always more expensive than it looks. The differences lie in interest rates, hidden charges, and how forgiving each option is if something goes wrong. Let us try to understand which is heaviest on your pocket, credit card or personal loan?
Interest rate of credit card and personal loan?
Nowadays, interest rates on personal loans generally range in a wide range. If you have a good credit score, are salaried and stable, you may find rates starting as low as Rs 1000. If your profile is weak, rates increase rapidly. Credit card EMIs are rarely cheap. Even when a bank advertises no-cost EMI, the interest rate is often included through processing fees or a small discount. Standard card EMI interest, when compounded annually, can easily cross 1824 percent. In simple terms, for the same amount and tenure, a personal loan usually has a lower interest rate than the card EMI — unless you qualify for a very low card offer.
The illusion of no-cost EMI
No-cost EMI sounds good, but it needs attention. In many cases, the shopkeeper gives a discount equal to the interest amount, so the EMI seems cheaper. You’re not saving money — you’re paying full price instead of getting a discount up front. Processing fees and GST are usually applicable on credit card EMIs. This fee does not reduce your principal, but increases your costs. Personal loans also have processing fees, but these are usually clearly stated and taken into account when you compare offers.
Impact on your monthly flexibility
Personal loan EMI is fixed, predictable and independent of your daily expenses. Once it’s set up, your credit card is free for emergencies. Credit card EMI reduces your card limit. This reduces your available credit until the EMI is fully paid. If your card has a low limit, it could force you to secretly overuse it — which could hurt your credit score. If you miss the card EMI, the consequences are even worse. Late fees are high, interest increases, and interest may start accruing on your entire card balance. Personal loans are more structured and a little more forgiving in comparison.
Tenure and control
Personal loans offer longer tenures, often up to five years. This helps in managing EMI for big expenses. Credit card EMIs are usually short, usually 6 to 24 months. Shorter tenure means higher monthly expenses, even if the headline rate looks the same. Prepayment is another difference. Many personal loans allow part-prepayment after a few months, sometimes with minimal penalties. It is difficult to stop credit card EMIs early without losing any so-called no-cost benefits.
So which one saves you more money?
If the expense is high and not linked to any special merchant offer, a personal loan is almost always cheaper in the long run. Credit card EMI can be suitable for short-term purchases, where you are certain of the total expenditure, the time frame is short, and the offer is truly transparent. Still, it’s worth taking a look at what discounts you’re missing out on. The biggest mistake is to choose only on the basis of convenience. Credit card EMIs may seem simple, but they are often more expensive. Personal loans involve a little more paperwork, but they are generally more mindful of your wallet.