When to Use a Personal Loan Instead of a Credit Card or Secured Loan?

Sometimes, life throws expenses at you when you least expect it—a medical emergency, a home repair or even an opportunity you don’t want to miss, like a dream vacation or a course to upskill yourself. And when you’re faced with these situations, the first question is usually, “How do I pay for this?”

You might think of using a credit card for quick access to funds. Or maybe you consider taking a secured loan by pledging some assets. But there’s another option, too—a personal loan. Each of these has its own pros and cons and what works best depends entirely on your needs and circumstances.

So, how do you figure out if you should submit a personal loan application or go with a credit card or a secured loan? That’s exactly what we’re diving into. We’ll look at when a personal loan might be your best bet, especially when compared to the other options. By the end, you’ll know how to make the right call without second-guessing your decision.

When you don’t want to pledge an asset

Sometimes, you may need funds urgently but don’t want to risk your assets, be it your car, property or investments. This is where a personal loan becomes a great option. Unlike secured loans, they don’t require you to pledge anything as collateral. It’s purely based on your creditworthiness, so you’re not putting your hard-earned assets on the line. This makes it a stress-free choice when you need financial support without complicating things.

When you want to secure funds at a nominal interest rate

Credit cards might feel convenient, but their high interest rates can make borrowing expensive, especially if you don’t pay the full amount by the due date. Personal loans, on the other hand, often come with significantly lower interest rates. This is especially true if you have a good credit score. It means you can borrow what you need without worrying about interest piling up at an alarming rate. Over time, this could save you a substantial amount of money.

When you need a fixed amount of sum

Imagine you know exactly how much money you need for a particular purpose—say ₹3 lakhs for a medical procedure or ₹5 lakhs for a wedding. In such cases, a personal loan is ideal because it gives you the exact amount you’re looking for in one go. Unlike credit cards, which might have limits or tempt you to overspend or secured loans that might give you more than you actually need.

When you want a substantial amount of money

If the expense you’re facing is large—like renovating your house or funding your child’s education—a personal loan can help. Credit cards usually have lower spending limits and secured loans might not feel right if you don’t want to pledge assets. Personal loans, however, can provide significant amounts, depending on your eligibility, giving you the financial freedom to tackle big-ticket expenses without jumping through too many hoops.

When you want to borrow at flexible yet fixed repayment terms

One of the best things about personal loans is the repayment structure. They give you the flexibility to choose a tenure that works for you, whether that’s a short repayment window of a year or a longer one that stretches over five years. A personal loan calculator can help you understand what your EMI will be for different tenures. The monthly EMI remains fixed, so you know exactly how much you’ll be paying every month. It makes budgeting easier and gives you peace of mind. So, you can stay on track with repayments without any sudden surprises.

Last word

Credit cards are perfect for small, everyday expenses or emergencies when you need quick access to funds. On the other hand, secured loans work well for planned, high-value purchases like buying a house or car. However, when it comes to covering costs like medical bills, weddings, home renovations or consolidating debt without pledging assets, personal loans shine. They give you flexibility, substantial amounts and manageable repayment terms. In the end, choosing the right option depends on what suits your specific financial situation best.