How to take a Loan Against a Credit Card? A Step-by-Step Guide

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There are many instances when we need a large amount of funds in a short duration of time, like for car repair or a medical emergency. One of the ways to manage these situations is taking a Loan. However, taking a traditional Loan can be time-consuming, involving a lot of paperwork and waiting time.

A quick and efficient alternative is a Loan against Credit Card. You can access immediate funds without the hassle of lengthy approval processes by managing your existing credit limit.

This guide will walk you through everything you need to secure a Loan against your Credit Card, ensuring that you can easily handle financial emergencies.

What is a Loan on a Credit Card?

A Loan on Credit Card is a type of Personal Loan offered by Credit Card issuers, allowing you to borrow money against your available credit limit. This Loan is distinct from cash advances because it comes with attractive interest rates, minimal documentation and flexible repayment options. Unlike traditional loans that require extensive documentation and credit checks, a Loan on Credit Card utilises your existing relationship with the Credit Card issuer, making the process quick and convenient.

For instance, if you have a Credit Card with a limit of Rs 1,00,000 and you’ve used Rs 40,000, you may be eligible to take a loan against the remaining ₹60,000 credit limit. The loan amount, interest rate and tenure will vary based on your Credit Card issuer’s policies and your credit profile.

Eligibility Criteria for a Loan on a Credit Card

You must meet several criteria to be eligible for a Loan on Credit Card. Here are some to consider:

• Credit Score: A good credit score is crucial. Credit Card issuers typically require a score above a certain threshold to ensure that you are a reliable borrower
• Credit Utilisation: Your Credit Utilisation Ratio (CUR), which is the percentage of your total credit limit that you’re using, should be within a healthy range. Lower utilisation indicates responsible credit behaviour
• Repayment History: A strong history of timely Credit Card payments will enhance your eligibility. Lenders prefer borrowers who have consistently met their payment obligations

Checking your eligibility is simple. Most Credit Card issuers provide an online portal to login to and view your pre-approved loan option. Alternatively, you can call Customer Service to get personalised assistance.

How to apply for a Loan on a Credit Card?

ICICI Bank offers a Loan on Credit Card, with a simple and direct application process. Here are the steps involved:

1. Check Your Eligibility: Start by logging into your ICICI Bank Internet Banking or iMobile Pay app and check in the ‘Credit Card’ section. You’ll be able to see if you’re pre-approved for a Loan on card and the amount you can borrow. You can also contact the Customer Service team for support
2. Understand the Terms: Before proceeding, carefully review the Loan terms. It includes the interest rate, repayment tenure, processing fees and other charges. Understanding these terms is crucial to avoid any surprises later
3. Submit an Application: If satisfied with the terms, you can submit your application online or through customer service. The application process is usually quick and the approval is instant if all criteria are met
4. Receive Funds: If you have instant loan on credit card offer, the loan amount is disbursed directly to your ICICI Bank savings account. In case you do not have savings account with ICICI Bank or have non-instant offer, the process can take 1 to 3 working days.

Interest Rates and Fees

The interest rates for a Loan on Credit Card are influenced by your credit score and repayment history. Generally, these rates are lower than those for Credit Card cash advances but higher than some other types of Personal Loans.

In addition to the interest rate, be mindful of other fees associated with the Loan. These can include:

• Processing Fees: A one-time fee is charged for processing the Loan application
• Pre-payment Penalties: A nominal amount is charged if you repay the Loan before the end of the tenure
• Late Payment Charges: If you miss a payment, you may incur additional charges.

Repayment Terms

Repayment terms for a Credit Card Loan are typically flexible, ranging from a few months to a few years. When choosing a repayment term, consider your monthly budget and financial goals. It is essential to select a tenure that allows you to comfortably meet the monthly Equated Monthly Instalment (EMI) payments without straining your finances.

Monthly EMIs will include both the principal amount and the interest. Ensure that you set up automatic payments or reminders to avoid missing any payments, which could impact your credit score and incur late fees.

Advantages of Loan on Credit Card

Taking a Loan on Credit Card offers several advantages:

• Quick Access to Funds: One of the biggest benefits is the speed of disbursement. Since the Loan is pre-approved, the funds are available much faster than traditional loans.
• No Additional Documentation: There’s no need for extensive paperwork or additional collateral, making the process smooth and hassle-free
• Flexible Repayment Options: Borrowers can choose repayment terms that best suit their financial situation, providing flexibility in managing monthly budgets.

Things to know about Loan on Credit Card

• Higher Interest Rates: The interest rates on Credit Card Loans can be higher than other Personal Loans
• Credit Limit Reduction: The Loan amount will reduce your available credit limit, affecting your credit utilisation ratio.
• Potential for Debt Accumulation: If not managed properly, taking a Loan on a Credit Card can lead to increased debt, especially if you continue to use the Credit Card for additional purchases.

Managing Your Loan Efficiently

To manage a Loan on Credit Card effectively, consider the following tips:

• Budgeting: Create a detailed budget to ensure that you can comfortably meet the monthly EMI payments
• Automatic Payments: Set up automatic payments to avoid late fees and ensure timely repayment
• Limit Additional Spending: To avoid more debt accumulation, try to minimise additional spending on your Credit Card while repaying the Loan.

Conclusion

Taking a Loan on Credit Card can be a valuable financial tool for you, if used wisely. It provides quick access to funds with minimal hassle, making it an excellent option during an urgent financial requirement.

However, to maintain healthy financial habits, it is crucial that you understand the terms, manage your repayment mindfully and avoid over reliance on credit.

Always evaluate your options, compare terms and choose what fits your financial situation. You may consult a financial advisor for a better understanding of the available options.

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