A Credit Card Loan is a financial service that allows cardholders to borrow cash against their credit limit. While Credit Cards are primarily used for purchases, a Credit Card Loan provides a way to obtain immediate cash, like a Short-Term Loan. Here are some things to know about it:
Eligibility criteria
The eligibility requirements for a Credit Card Loan varies between banks. However, some common requirements include:
- A good credit score
- A stable income source
- Credit Card with a reasonable credit limit
- Repayment history
Interest rates
The interest rate for such a Loan is usually higher than other Loans due to its unsecured nature. Banks may charge an interest rate of 10% to 36% annually. This also depends on your creditworthiness and the bank's policies.
Processing fees
Banks also charge a processing fee for the Loan, ranging from 1% to 3% of the Loan amount. This fee is non-refundable and deducted from the Loan amount disbursed to anyone.
Tenure
The tenure for Loans against Credit Cards is usually shorter than other Loans. Banks may offer up to 36 months of tenure for such a Loan. However, depending on the Loan amount, it may vary.
Loan amount
Banks may offer a loan amount of up to 80% of the available credit limit on your Credit Card. However, the Loan amount differs and may also depend on your creditworthiness.
Repayment
You can usually repay the Loan through equated monthly instalments. The calculation of the EMI amount depends on the Loan amount, interest rates, and tenure. You can repay the Loan via post-dated cheques or auto-debit from your Bank Account. Check this aspect with your bank when you apply for a Credit Card online.
Prepayment and foreclosure
You can prepay or foreclose your Loan. However, banks may charge a prepayment or foreclosure fee ranging anywhere from 2% to 5% of the outstanding Loan amount.
Impact on credit scores
The repayment of the Loan can significantly impact your overall credit score. For example, timely payment of EMIs can improve the credit score. However, defaulting on payments can negatively impact the credit score.
Loan disbursement
The amount for a Credit Card Loan is usually disbursed directly to your Credit Card Account. You can then use your card to make purchases or withdraw cash.
Documents required
The documents for this Loan also differ. However, the basic ones include identity proofs, address proofs, income proofs, and a copy of the Credit Card statement. It is best to check this with your bank beforehand to sail through the application process.
Conclusion
A Credit Card Loan lets you get cash advances. However, due diligence and careful consideration are essential when using such Loans to ensure sound financial decision-making.
