Have you ever thought about taking out a loan on your credit card but were unsure how this differs to a personal loan? We take a look at situations in which a loan on a card could be the appropriate option for you and delve into the details of this product to help simplify your decision.
Applying for a personal loan can require more time and paperwork
The process of applying for a personal loan in the UAE can sometimes be daunting. When all of the paperwork is done and dusted, you then find yourself pretty much committed for the long haul and bound to make monthly payments of a fixed amount. The terms and rules can often be inflexible and overpaying could result in penalty charges.
Loan-on-card can be a good option for quicker financing
The lengthy process involved in obtaining a personal loan is one of main reasons why some bank customers opt to take a loan on card (LOC). It’s a lot less paperwork as the customer is generally preapproved by the bank in the first place. Also, it’s an ideal option if you are looking for immediate funds that you would be able to pay back in the short term (at a lower interest rate than a typical credit card). Additionally, depending on your issuing bank, you may be able to get a lower arrangement fee on a LOC as compared to that typically charged on a personal loan.
Be ware though, that interest rates on LOC are typically far higher than those on personal loans. So although LOC can be easier and quicker to obtain, it does come at a much higher cost to the customer.
How do I qualify for a loan-on-card?
To be eligible for a LOC, the customer must demonstrate a good credit history with the bank. As with any loan, the requirements can vary according to the loan amount and interest rate on offer. This bank may typically require that you do not already have outstanding debts or loans that need to be paid off.
It’s important to note that the above mentioned details are only general guidelines. Each bank will have their own underwriting criteria, terms, conditions and varying interest rates, so it would be wise to shop around before deciding on a line of credit.
Should I apply for a LOC?
For those who are unable to qualify for a personal loan, the LOC could be the next best option, provided that they are able to re-pay the amount within a shorter time frame. Just make sure you don’t bite off more that you can chew “If a bank is declining to lend, I would have to question whether the (customer) would be wise to borrow at all,” says Keren Bobker, Senior Associate at Holborne Assets – a company that provides financial advice to individuals. “I have seen adverts for non-bank loans but people should be wary of less regulated borrowing that will usually be at very high interest rates.”