New Delhi: Many times we suddenly need money. If you have not arranged for an emergency fund, then generally you are left with two options. Credit card or personal loan. Both of these are unsecured loans, because in this you do not need to mortgage anything. In such a situation, the question arises whether one should use a credit card in an emergency or it would be better to take a personal loan.

Advantages and disadvantages of credit card

Today, credit card has become an important part of most people's life. You can use it for making necessary bill payments as well as shopping. You can also withdraw cash from ATM using credit card, but you may have to pay a high charge on it. However, you can pay rent and school fees using credit card with a certain charge. On this, you get the benefits of reward points, gift cards, vouchers, discounts and cashback, which are not available in personal loan.

In a credit card, you get a certain time period to repay the loan. This can be up to a maximum of 45 days according to your billing cycle. If you repay the dues during this period, you will not have to pay any interest. But, in case of default, you may have to pay a hefty interest, which varies according to the bank.

How right would it be to take a personal loan

If you need a lump sum of cash, you can take a personal loan. In this, you have to complete some necessary paperwork and the bank checks your ability to repay the loan. After your profile is cleared, the bank will transfer the loan amount to your account. In this, you may also have to pay a processing fee, which varies according to the bank.

However, you should keep in mind that the interest rate of a personal loan can be much higher than a home loan and auto loan, as it is an unsecured loan. Also, you cannot close it by paying a lump sum amount before a certain time. In case of doing so, the bank can also charge you a penalty as a pre-payment charge. Also, GST is also levied on personal loans.

Which is better, credit card or personal loan?

The answer to this depends on your need. If you need 20-30 thousand rupees for a short time or have to make purchases for marriage etc., then you can use a credit card. This means that a credit card is good for small amounts and short periods. If you spend a large amount from a credit card and are unable to repay it on time, then the high interest rate can trap you in a debt trap.

If you need a large amount for a long period of time and are unable to arrange money from anywhere, then you should opt for a personal loan. In this, you get more time to repay the loan. You can also increase or decrease the EMI according to your income. This helps you in repaying the loan easily.