How to Take a Loan Against a Credit Card

29 May 2023
6 min read
How to Take a Loan Against a Credit Card
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Life has a way of throwing unexpected challenges our way, sometimes ones that may leave us in a cash crunch situation too.

And in times like this, people often turn to their credit cards!

But what if the cash withdrawal limit is lower than the amount of cash we need? Is there a solution?

Yes, in fact, there is - Loans against Credit Cards.

Well, yes. You can avail yourself of a loan against a credit card and fill in your cash gap. Although some people consider it an unconventional way to get a loan, this option has proven to be of great worth!

In this blog, we will give you a heads-up about everything you should know about getting a loan against a credit card.

Understanding Loans Against Credit Cards

A loan against a credit card is unsecured, allowing cardholders to borrow money against their available credit limit.

Instead of making purchases, individuals can utilize the unused portion of their credit limit to access immediate funds.

The loan amount is determined based on the available credit limit and is secured by the credit card itself, eliminating the need for additional collateral or extensive documentation.

When it comes to short-term emergencies and leveraging available credit limits, loans against credit cards can emerge as a smart choice. They allow you to access immediate funds by utilizing untapped credit limits.

How to Apply for a Loan Against Credit Card ?

Applying for a loan against a credit card is pretty simple. Here are the steps that you can follow to learn how to take loan on credit card -

Step 1: Check Eligibility

Ensure you meet the eligibility criteria set by your credit card issuer, including factors such as having a good credit score and a stable income.

Step 2: Contact Your Credit Card Issuer

Reach out to your credit card issuer's customer service at the nearest branch or visit their website to inquire about the loan against credit card facility and understand the terms and conditions.

Step 3: Complete the Application 

Fill out the application form provided by your credit card issuer, providing accurate personal and financial details, as requested. 

Step 4: Submit Required Documents

You may need to submit documents such as identity proof, address proof, income proof, and credit card statement.

Step 5: Await Approval

After submitting your application and documents, the credit card issuer will evaluate your request.

If approved, you will receive confirmation along with the loan terms and conditions. The loan amount will then be disbursed to you via ECS transfer to your account or through a demand draft issued by the bank.

Benefits of Taking a Credit Card Loan

Now that you are familiar with how to get loan on credit card, here are some of the prominent advantages that you can avail of with a loan against a credit card-

  • Instant Access to Funds

A loan against a credit card provides instant access to funds, ensuring you can address your financial needs promptly. The loan amount is disbursed to your registered bank account, and there is no restriction on the end-use of the loan amount as far as it is used for a legitimate purpose.

  • No Collateral or Documentation Hassles

Loans against credit cards do not require any collateral or complex paperwork, simplifying the application process and saving time. 

  • Lower Interest Rates

Credit card loans often offer more favourable interest rates compared to the interest charged on cash withdrawals made using credit cards. This can result in significant cost savings over time. However, this interest rate is still higher than that of personal loans. 

  • Convenient Application from Anywhere

Whether you're at home or on the go, you can apply for a credit card loan from anywhere at any time. This convenience adds flexibility and accessibility to the borrowing process.

  • Low Processing Fee

Credit card loans often come with a low processing fee, reducing the overall cost of borrowing and making it an affordable financing option.

  • Repayment in Monthly Installments

Repaying the loan is made convenient with monthly instalments. In addition, the loan amount is billed to your credit card as monthly EMIs, simplifying the repayment process.

Who is Eligible to Get a Loan Against Credit Card?

To be eligible for a loan against a credit card, you must be an existing credit card holder.

Many credit card providers offer loans to pre-approved customers based on their excellent credit history and timely transactions. In addition, since a credit card holder has already submitted personal and income documents during the credit card application process, no additional documentation is usually required.

Your eligibility depends on factors such as a strong credit history, a high credit limit, and being in the high-income bracket.

Banks assess your creditworthiness to ensure your ability to repay the loan. You can check your eligibility by visiting the nearest bank branch or using the net banking facility provided by your credit card issuer.

Things to Know Before Taking a Loan Against Credit Card

A few things you might want to consider before applying are-

  • Top-up Loan Option

Some credit card providers offer top-up credit card loans for existing customers. Borrowers with a good repayment record to access additional funds.

  • Flexible Loan Tenure

Loan against credit cards typically offers flexible repayment tenures. It is usually based on a borrower's credit limit, certain credit factors, and the terms & conditions that a bank follows.

  • Credit Card Usage 

Depending on the remaining available credit on your card after deducting the loan amount, you may still be able to use your credit card for transactions. However, it's crucial to consider the impact on your repayment obligations.

Using the credit card for additional transactions while having an outstanding loan can affect your ability to repay the loan on time.

  • Loan Default Consequences

Defaulting on loan repayments or failing to pay EMIs and credit card dues on time can result in late repayment charges and negatively impact your credit score. 

  • Pre-closure Charges

If you plan to repay the loan before the agreed-upon tenure, be aware that pre-closure charges may apply. 

Summing Up

A loan against a credit card can be a valuable financial instrument for obtaining immediate funds.

It offers instant access to funds, simplified application processes, and minimal documentation requirements. However, it is essential to carefully evaluate interest rates, charges, and repayment terms before opting for this borrowing option.

Remember, responsible borrowing and prudent financial management are vital to maintaining a healthy financial profile. Hence, you must understand the intricacies of a credit card loan to leverage this option to address your immediate funding needs effectively.

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