Credit Card Loan and Personal Loan in the USA

Credit Card Loan and Personal Loan

A credit card comes with a specified pre-approved credit limit which can be used by the holder in a month. However, if you are in urgent need of cash, most banks offer you the facility of loans against credit cards. You can take the loan against the credit limit which you have been given. Once the bank approves your loan request, the limit will be credited to your account. Bank charge a certain interest rate for the repayment of the loan. You can repay this loan through Equated Monthly Installments (EMI) for a specified tenure.

Features of a Loan on Credit Card

Different banks offer comprehensive loan schemes when it comes to loans on credit cards. Some of the features of a loan on a credit card are-

Since most of the loans on credit cards are pre-approved, you need not submit any extra documentation, the loan will be processed and disbursed quickly.
With EMI schemes offered by the issuers, you will be able to break your expensive purchases into easily affordable installments.
Some banks also offer loans against other bank’s credit cards through Balance Transfer on EMI where you can transfer the outstanding balance on other credit cards to one credit card and pay the EMI.
Issuers also offer you the option of taking a loan within or over your credit limit.

Types of Credit Card Loans

Consumers can get a loan for just about anything they want to purchase, which tells you approximately how many loan types there are available. Loan types vary because of interest rate or repayment period, but if you want to borrow money to make a purchase, there probably is someone available, somewhere, who will lend it to you.

Here is a list of some of the most popular varieties of loans:

Debt consolidation
Student
Mortgages
Auto
Veterans
Small business
Payday
Borrowing from friends and family
Cash advances
Home equity

Personal Loans

The best thing about personal loans is they can be used for any reason. Secured and unsecured personal loans are an attractive option for people with credit card debt, who want to reduce their interest rates by transferring balances. Like other loans, the interest rate and terms depend on your credit history.

Here is a look at some facts you should know about personal loans:

Common personal loan term: 12-60 months
APR interest range: 6% to 36%
Minimum loan: $1,000-$3,000, based on lender
Maximum loan: $25,000-$100,000 based on lender
Required credit score: Above 660, but some lenders allow it as low as 610
Collateral requirements: Required for secured loan; not required for an unsecured loan

What Is Debt Consolidation?

Consolidation is a sensible financial strategy for consumers tackling credit card debt. It merges multiple bills into a single debt that is paid off with a debt management plan or a consolidation loan. Consolidation reduces the interest rate on your debt and lowers monthly payments. This debt-relief option untangles the mess consumers face every month trying to keep up with multiple bills and multiple deadlines from multiple card companies. In its place is a simple remedy: one payment to one source, once a month.

Benefits of Choosing a Personal Loan

One benefit of a personal loan is in the name: It’s personal. You can use it for any reason you like and you often don’t need collateral to get one. You can use personal loans to cover practical expenses like credit card consolidation or remodeling a bathroom to something whimsical like buying a boat or taking a European vacation. The choice is yours. Personal loans, especially unsecured ones, usually require an application and verification of your financial standing. Though banks or credit unions make personal loans, the new trend is toward less conventional lenders. Family and friends can be the source of money, though it is advisable to have a formal loan agreement with them to make sure the relationship doesn’t go sour. There also are many peer-to-peer online lending sources like Prosper and Lending Club, as well as sites like Kickstarter.com and IndieGoGo.com that cater to entrepreneurs. The online sites normally charge a fee, but if you need money quickly they represent an option.

Other benefits of personal loans:

You get the money faster. In most cases, approval is much quicker than with conventional loans.
Don’t need a bank. The money could come from a credit union, an online lender, a family member, or a friend.
Fixed-rate interest, fixed length of repayment, and fixed monthly payments.
Loan amounts available from $1,000 to $100,0000.
Lower interest rates than credit cards.
If a loan comes from a bank, possible discounts on interest rates.

Applying for a Personal Loan

The application process for personal loans should be easy, as long as you answer the questions in detail and can verify your work and credit history.

Before you start filling out the application form, take a few minutes and answer some questions:

What is the purpose of the loan?
What is your credit score and what type of interest rate do you expect to receive based on that score?
How much are you going to borrow and can you comfortably afford the payments on that amount?
How long a repayment schedule can you handle and do you want a secured or unsecured loan?

Once you have the answers, gather the documents required to verify financial information. You may need tax returns, checking and savings account information, deeds for property, and titles for cars. You may need all or parts of that list, depending on the size of the loan you’re seeking.

Finally, you will need the usual personal information – name, age, address, social security number, and contact numbers – and something to verify each one.

Many loan applications are rejected because the borrower couldn’t provide the documentation needed for approval. It’s important to assemble all necessary paperwork before you start filling out the application.

One more bit of advice: Shop around. It may feel you’re begging for help when you start the process, but the truth is, you’re the customer. If the lender wants your business, they will work with you to get a deal done. If not, keep shopping.

Qualifying for a Credit Card Loan

Since most personal loans lack collateral, lenders will scrutinize your credit history, your income, and your debt level before approving financing.
Your credit history, and your credit rating, will help determine how much interest you’ll pay. The lower your credit score, the higher the interest rate and the less you’ll be able to borrow.
Since there are many varieties of personal loans, there’s no single formula for qualifying to borrow. Payday lenders, for instance, will often loan money in anticipation of a paycheck or a tax refund. Payday lender often requires a credit check but might charge interest rates of 400% or more.
The high interest can prove disastrous for borrowers, so be wary of such lenders and always consider the terms of the loan.
Too many borrowers fail to understand how interest accrues and come to regret their decision.
Some lenders will transact with people will low credit scores but will charge relatively high interest rates – often as much as 36%.
As a rule, avoid payday lenders and carefully evaluate repayment terms and interest rates before borrowing.
Personal loans can be cheaper than credit card balances and offer a way to consolidate several debts into one. Credit card debt is revolving debt while personal loans are installment debt. Credit rating agencies treat revolving and installment debt different, and transferring debt from revolving to installment can improve your credit score.