You need ₹2,00,000. You have a credit card with a ₹2,50,000 limit and access to a personal loan at 22% p.a. Which costs less? The answer depends on whether you will carry the balance, for how long, and whether you can use the credit card's grace period strategically.
The Interest Rate Comparison
Credit cards in India typically charge 36–48% per annum on revolving balances (the amount you carry forward past the due date). Personal loans from NBFCs range from 18–36% p.a. on a reducing balance. For balances carried over more than one billing cycle, a personal loan is almost always cheaper.
| Factor | Personal Loan | Credit Card |
|---|---|---|
| Interest Rate | 18–36% p.a. | 36–48% p.a. |
| Interest-free period | None | Up to 50 days |
| Processing fee | 1–4% | None |
| Structured repayment | Yes — fixed EMI | Minimum payment trap |
The Minimum Payment Trap
Credit cards allow a minimum payment of 5% of the outstanding balance. If you owe ₹2,00,000 and pay only the minimum each month, it will take over 8 years to clear the balance — and you will pay more than ₹3,00,000 in interest alone, on top of the original ₹2,00,000. A personal loan with a fixed 24-month tenure eliminates this trap by design.
When Credit Cards Win
If you can pay the full balance within the interest-free period (typically 25–50 days), a credit card is completely free credit. This is the right tool for predictable monthly expenses you can pay off immediately. The mistake is using a credit card as medium-term financing — that is the personal loan's job.
The Verdict
For expenses above ₹50,000 that you cannot repay within 60 days, a personal loan is significantly cheaper, provides structured repayment discipline, and has a predictable total cost. Use the credit card for rewards and grace-period leverage on smaller, immediate expenses — never as a substitute for planned borrowing.