What is a loan on a Credit Card? How does it work?

However, if you need funds to meet a financial emergency, you can use your credit card online to apply for a loan. Yes, it is true. You can acquire a loan against your credit card. The loan amount that you can get depends on your credit limit. At times, you find yourself in a situation where you are unable to cater to financial needs. In such cases, a pre-approved loan against a credit card comes in handy. It enables you to have easy access to funds, thus saving your time.

Loan against a credit card

It is a type of unsecured personal loan which is pre-approved against your credit limit. The best part is that you do not have to go through extensive documentation to ensure your eligibility. Since it is an unsecured loan, you do not have to pledge your asset with considerable value as collateral or security in exchange for the loan amount. 

To acquire a loan against a credit card, you must convenience your lender that you have been using your credit card responsibly. Make sure that your credit score remains healthy and you have always paid your credit cards bill on time and in full. The loan amount depends on your credit limit. Some banks may even offer over and above the credit limit as a loan. 

How to get a loan against your credit card

The benefit of applying for a loan against a credit card is that you have instant access to funds. You can use the loan amount to pay expenses, such as school fees, EMIs, vacations, etc. It is worth noting that this type of loan serves multiple purposes. It means that you can get a loan for whatever reason you can. There is no restriction on the end-use of the required loan amount. 

Further, the loan disbursement is instant. You can get a loan amount equivalent to your credit limit at affordable interest rates. The repayment tenure is flexible too. You can choose to repay the loan amount with interest within 6 to 60 months. So, if you need funds to meet an emergency, apply for a loan against a credit card may be your best shot at accessing instant funds. 

Eligibility criteria to acquire a loan against a credit card

Generally, banks offer a loan against a credit card to both old and new customers. Here are the criteria to get a loan: 

• You must have a credit card to avail of a loan. 
• You must maintain a strong credit history and a high credit limit. Credit cards are provided to borrowers with a great record of credit repayment. Your bank will perform a thorough assessment before approving your application for a loan. 
• Borrowers in the high-income bracket are also eligible to apply for a loan against a credit card. 
• You are eligible to upgrade your credit card to gold if your income has increased. 

Benefits of loan against credit card

There are numerous benefits you can avail of after applying for a loan against your credit card. For instance: 

• You do not have to provide additional documents or collateral to avail of a loan. 
• You can be the loan amount based on your flexibility. With affordable EMIs, you can make on-time repayments without putting any burden on your pocket. 
• You may need to provide guarantors when availing of a loan against credit cards. 
• You can get affordable interest rates based on your repayment capacity. It is similar to that of a personal loan. 
• Almost all banks offer credit cards in India. It means that you can easily access funds against your credit card when the need arises. 
• You can avail of flexible repayment tenures. Depending on the loan amount and the interest, you can choose a tenure between 6 to 60 months. 

It is worth noting that a loan against a credit card is offered only to borrowers who have a credit card. It means that you will need to get a credit card online if you wish to apply for a loan on a credit card. Besides that, you will have to maintain a healthy credit score to upgrade your credit card from silver to gold and get access to a better loan facility.