Loans against credit cards aren’t an uncommon phenomenon, and various credit card providers and banks offer individuals with a loan against credit cards. Having said so, the interest charged on these cards vary.
These credit card loans are quite similar to a personal loan. Both are unsecured loans, hence, no collateral is required, and comes with a fixed rate of interest over a set tenure. Depending on the card limit a loan is approved, note that the maximum loan amount will not exceed the credit limit on of the card. Also, the interest rate is lesser than the prevalent rates on credit card transactions. Usually, the annual rate of interest on credit cards ranges between 35 per cent to 40 per cent, sometimes more, varying from card to card.
Hence, if you already have a loan on your credit card, or planning to take one – here are some things that you should be aware of;
What happens if you make late payments?
Making late payments can affect your chances of getting a top-up loan. Even though various banks and credit card providers offer top-up loans to individuals against their credit cards, however, one needs to have a clean credit history with no instances of inconsistent payments to get approved.
For instance, if you want a loan against your credit card, late payments of your credit card bill can impact your chances of getting it in future. Therefore, experts suggest one should avoid late payments if one wishes to get loans in the future.
What happens if you make default in your payment?
A default is recognized as a loan default and not as a credit card default. There is a significant difference among defaults on credit card repayments and that of loan repayments.
For instance, credit card defaults affect credit scores quite significantly, however, a default on a loan against a credit card means a loan default, which has a more severe effect on the cardholder’s credit score.
When opting for the loan against a credit card, processing fees are levied on the loan amount. Usually, processing charges on these loans range between 1 per cent to 5 per cent.
Choosing a tenure of your choice
Most credit card providers and banks offer flexible tenure option, therefore, the cardholder can opt for a repayment period of his/her choice. Most lenders offer credit card unsecured loans up to a maximum tenure of 24 months, but there are also banks that have the tenure options over 24 months.
Interest rates on credit card transactions
If you opt for a credit card loan amounting to 70 per cent of your credit limit, the remaining 30 per cent will attract prevalent credit card interest rates. Hence, if you use your card to make a transaction and do not repay it within the due date, interest rates of around 35 per cent per annum will be applicable.
Pre-close your loan
You can pre-close your credit card loan any time you want. Experts say if the cardholder wants to pre-close the loan they can do so at any time, without necessarily informing their bank, however, pre-closure charges, will be levied, as determined by the lender.