The festive season discounts and the New Year offers are here. It’s the season to renew your wardrobe or your home. If you plan to go shopping for clothes, electronics and home appliances, you should have saved for them. Have not got the money, but want to shop anyway? Then, you will either need a credit card or a consumer loan. Both have their own advantages and disadvantages.
So, which one should you go for? Let’s do some analysis.
The credit card is king?
As you might already know, credit cards offer reward points, surcharge waivers, shopping vouchers, cashback and more. You can also convert your big purchases into EMIs. Is there any other reason why you should choose a credit card?
You might have seen those banner ads on e-retailer websites or the billboard of a store retailer that screams ‘ABC bank customer? Get an additional discount of x%’. This is when a credit card can score over a consumer loan. If the offer also says that you can convert your purchase into EMIs, that’s even better.
Caveat: The exclusive discounts offered might be applicable only if you have a particular card from the bank. Also, the EMI option might come with a high processing fee. This might actually make your purchase a more expensive one. So check the fine print before you swipe the card.
Cashback and rewards
There are many credit cards that offer cashback and reward points for certain spends. For example, the Citi Cashback Card gives you 5% cash back on movie tickets and 0.5% cashback for all other purchases while the HSBC Visa Platinum Card gives you 10% cashback. You can even exchange your reward points for cash back in case of cards like the HDFC Bank Moneyback Card.
Caveat: There will be limits to the amount of cashback that you can get. Check the terms and conditions of the offer before you choose to use the card.
Unlike consumer loans, there is no documentation involved in case of credit card purchases. You just need to swipe and call your bank’s customer care to convert it into EMIs. In case of e-retailer, you don’t even need to call customer care. You can choose the EMI option while making the payment for the product that you want to purchase.
Caveat: The processing fee might get automatically added to your purchase in case you are buying from an e-retailer. Look at the total carefully to understand the charges before paying.
Are consumer loans great?
Every other retailer now offers consumer loans at zero percent interest. These loans are mostly offered by non-banking financial institutions. The tenure might be higher than that offered for credit card EMIs.
The associated charges for these consumer loans are also generally lower than that of credit cards. Remember, if you don’t pay your credit card bills on time, interest might be charged at rates that can be as high as 40%. That’s why a number of people prefer consumer loans over credit cards.
Caveat: Some of these loans might offer interest rates that are low initially, but might go higher as the years go by. For example, retailers advertise loans that are offered at 4% interest. This might be applicable only for the first year. The interest rate for the subsequent years might be higher. Check the terms of the offer.
In case of credit cards, your purchase will be limited to the credit limit. However, you can get a higher amount when you go for your consumer loan. This is because like a personal loan, your income can be used to provide a higher loan amount if needed.
Caveat: In case you want a higher loan amount than what is offered by a financial institution, you might have to pay a higher processing fee and more interest on your loan. Check with the lender before you opt for a higher amount.
While a credit card can be very convenient, getting a consumer loan might work out cheaper if there are no charges. Calculate the cost for each of them and then choose the one that will not be a burden on your pocket.