Loans or EMI (Equated Monthly Instalment) are a basic tool for individual debt arrangement. However, in recent times, consumers usually face difficulty while choosing between two: a personal loan or EMI. Generally, personal loans charge a lower interest rate than EMIs, but there are scenarios where an EMI can cost less than a personal loan.
The Interest Rate Showdown
The fundamental difference lies in the Annual Interest Rate (APR). Annual Interest Rate is the yearly cost of a loan, which includes interest and fees, and which is expressed as a percentage. Interest rates can differ from bank to bank and in EMIs too.
Interest rate for a personal loan typically ranges from 9% per annum to 12% per annum, but it can still go up to 24% per annum or higher depending on the borrower’s credit history and income stability.
Talking about credit card EMI, there is a popular term referred to as “NO-Cost EMI,” which is a standard credit card EMI conversion that carries no extra interest charges; however, other fees and charges like processing fee, pre-closure/foreclosure fee are still levied on the EMI plan. Interest rates on credit card EMI plans generally start from around 12% and can go as high as 24%, depending on the card issuer and chosen tenure.
Beyond the interest rates: fees and flexibility
Processing fees: Both borrowing methods attract processing fees. For personal loans, the amount ranges between 0.5% to 5% of the sanctioned amount. In case of credit card EMI, the processing fee charged is either 1% to 2% or ₹99 to ₹299 inclusive of GST, whichever is higher.
Loan tenure: This is a key differentiator. Personal loans offer longer and flexible repayment tenures; however, credit card EMIs do offer long-term credits, but they are specially designed for short-term borrowings.
Loan amount: A personal loan is superior to large expenses. Based on eligibility, a personal loan can provide funds from ₹50,000 to ₹20 lakhs and even higher. A credit card EMI typically depends on the card’s available credit limit, which is curated for small expenses.
Convenience Vs Cost
While a credit card EMI can be more convenient to get, the interest rates and other charges can be a bit costly for long-term repayment. On the other hand, personal loans can take a much longer time to get sanctioned, and the interest rate charged and alternative fees are generally satisfactory for a long-term plan.
For significant planned expenses like weddings, land purchase, home renovation, and consolidating other debts, a personal loan can be more effective than a credit card EMI. However, for short-term expenses like purchasing an electronic gadget, home appliances, and so on, a credit card EMI can be more convenient to use as the wait time is negligible.
{News Ei Samay does not provide investment advice anywhere. Investment and trading in the share market or any field involve risk. Proper study and expert advice are recommended beforehand. This news is published for educational and awareness purposes.}
