If there’s one thing constant in this world, it’s the utter abundance of crisis. And as far as financial crises go, they are bound to come sooner or later, at any time. The best way to deal with a crisis of significance is to face it head on, to hold the bull by its horns. For that, you must be prepared with enough backup and financial reserves, so that you’re able to successfully navigate through the entire fiscal labyrinth and emerge victorious. A number of financial tools are available, with their merits and disadvantage. Common sense might dictate to opt for a personal loan; and while it’s relatively easy to get one, it’s not the only option that you can resort to. You can always opt for credit card loans. However, being the lesser used option; there have developed certain myths around credit cards and credit card loans. In order to dispel these myths and present the actual fact, let us examine the both of them below:
- Cash Withdrawal Against Card is a Loan: Many first time credit card users think that the cash withdrawal facility available with their cards to be equivalent to that of a credit card loan. Actually, cash withdrawals by a credit card and credit card loans are subject to two, distinct ways. The major difference between them is in the rate of interest charged. In the case of credit card loans, the rate of interest is comparable to that on personal loans. On the other hand, the interest rate on cash withdrawals is significantly higher, and is usually calculated from the day of cash withdrawal. Also, the amount of cash that can be withdrawn is limited for each credit card, as the overall credit limit. Further, all cash withdrawals come with a withdrawal fee. Thus, evidently, cash withdrawals don’t intrinsically constitute a loan.
- Late Payment Doesn’t Attract Interest:When you take a loan against your credit card, repayments are to be made in periodic, monthly instalments. These EMIs would be billed to the credit card; depending on how long would the loan last. If you fail to pay your EMI on time, you’re charged with a high interest component. This interest component is an addition to the interest you’re already paying to repay the loan. Having to pay more than what you already pay as interest is indeed an unpleasant prospect, but this is what the consequence of late EMI payment actually entail.
- Credit Card Loans are at Reducing Rates:The interest rate that’s offered on a credit card loan is often the deciding factor for many customers, who wish to opt for a loan against their cards. When compared to a personal loan, credit card loans might appear to come at a slightly lower rate of interest, but here’s the interesting part – credit card loans are offered at flat interest rates while personal loans come at reducing balance rates. A flat interest rate is calculated on the full loan amount, throughout the tenure and while ignoring the paid EMIs, which periodically reduce the principal amount. This is not the case with personal loans, where the paid EMIs’ effect on the principal amount is duly considered while calculating the rate of interest; this makes the rate of interest on personal loans lesser than that of credit card loans. Hence, if you are looking for paying less, perhaps not opting for a credit card loan might be a very good idea.
- Balance Transfer is No Loan:You are free to transfer your outstanding balance on your credit card from one bank to the other. Opting for a transfer of balance implies that you’re seeking a new loan, for repaying old debts. Usually, the loan amount is disbursed through demand drafts (DFDs), credit card number or loan account number of the old bank. Since it’s a new loan, CIBIL verification is subjected to your credit history after you have applied for a balance transfer. Processing charges are also applicable since balance transfer is actually an application for a new loan. In this way, we can see how much of balance transfers not being a loan is objectively a myth.
5. Taking Card Loans will not hurt your Credit Score:
Contrary to popular opinion, the opposite of this myth is true. Banks offer loan facilities to credit card holders who possess a dual reputation of good credit history and a high credit score. Therefore, if you have a credit card but your credit score has since substantially declined, your chances of getting a loan against your card reduce in proportion. Actually, a loan against your credit card is just another unsecured loan option, which can be compared essentially to a personal loan. Consequently, any default in your repayment of your credit card loan adversely impacts your credit score, as well. So, there’s no excuse to lower your guard on paying off your credit card loans on time. To know more click here: https://chqbook.com/credit-cards.