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Is it risky to take loan against a credit card? Let’s find out!

Imagine a situation where you are in need of immediate cash! Your savings could fall short, and you probably don’t want to disrupt your long-term investments. The best way to arrange emergency funds can be by taking a loan against your credit card. 

The basic thing you need here is a credit card to apply for such a loan. If you don’t have a credit card, you can apply for the Airtel Axis credit card from the Airtel Thanks app or online. 

Is it risky to take loan against a credit card? Let’s find out!

Credit card cash advance and loan against credit card – same or different?

People often confuse cash advances or withdrawals with loans against credit cards. This is wrong. A cash withdrawal refers to taking out or transferring money from the available credit limit to your bank account. On the other hand, if you take loan against a credit card, you are basically taking an unsecured personal loan against the credit card. 

The interest rate for cash withdrawals and loans against credit cards is totally different. 

Now, coming to the given question – ‘Is it risky to take a loan against a credit card?’ Let’s try to understand how loans against credit cards work before opting for loans against credit cards to answer the question. 

What is a loan against a credit card?

Let’s say, you have had a credit card with a bank for 2 years now. Your approved credit limit is Rs. 3 Lacs. You have used over Rs. 20,000 from the card. Your remaining limit is Rs. 2,80,000. 

You urgently require some amount. So, you decide to take a loan against your credit card. The bank will offer you a loan for the remaining credit limit and nothing more. In this case, the amount will be Rs. 2,80,000. Once your loan is sanctioned, your limit will reduce by Rs. 2,80,000. The bank will offer you a tenure period to pay back the loan. You can pay it back with interest in the form of monthly EMIs. 

Since a loan against a credit card is an unsecured loan, the bank charges almost similar to personal loan interest rates and charges a hefty foreclosure fee. A processing fee ranging from 1% to 5% is also charged by the bank. Although, some banks waive it off for a few loyal customers. You will have to discuss this with your bank to know the details. 

Remember that a loan against a credit card is considered a personal loan. Any default on your payment will have the same impact as a default on a personal loan EMI. 

Note: Credit card payment default has less impact on the credit score in comparison to a personal loan.

Now that you have understood what exactly is a loan against a credit card and how it works, let’s know more about the risk factor.

A loan against a credit card is not risky per se. You need to be aware of the following pointers to make an informed decision:

  • Interest rate (is it higher than personal loans and cash withdrawals)
  • Tenure
  • Processing Fee
  • Any other hidden charges

If you have these details, you can go for a loan against a credit card. The best part, it requires zero documentation, and sometimes the loan amount is processed within minutes. 

If you have the Airtel Axis credit card, you can definitely check out the possibility of a loan against the credit card. In case, you require more than your credit card’s limit, you can also go for an instant personal loan available on the Airtel Thanks app. They have minimal documentation and a fast application process.

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