What Is a Loan Against a Credit Card?

A loan against a credit card is an important feature offered by many credit cards. Through a loan against a credit card, credit card holders can take instant loans by converting the available cash limit into a personal loan.

Thus, you can avail of a loan against a credit card during times of emergency. As it is a pre-approved loan, the disbursement is instantaneous. Another major advantage is that you can apply for this loan without going through a lot of paperwork.

Continue scrolling to know more about the provision of availing loans against credit cards.

How Does a Loan against a Credit Card Work?

In a loan against a credit card, the issuer sanctions a loan amount not exceeding the credit limit of the card. This can be better illustrated with an example.

Suppose your credit card has a credit limit of ₹600,000. You have applied for a loan of ₹500,000 for a period of 12 months. The bank is charging an interest rate of 10% per annum on the loan.

Once the bank approves the loan amount, you will receive it in your bank account. However, along with that, your available credit limit will be reduced to ₹100,000 from the original ₹600,000 limit.

To repay this loan, you will have to pay a monthly EMI of ₹43,958 for 12 months. With every EMI payment, the bank will continue to gradually release the blocked credit limit. After the full repayment over 12 months is complete, you will get your full credit limit of ₹600,000 back for your credit card.

This is how loans against credit cards work.

Benefits of Taking a Loan against a Credit Card

The following are some of the benefits of loans against credit cards:

  • Pre-approved Loans

Loans against credit cards are pre-approved by the concerned bank. Thus, you do not have to spend a lot of time filling out lengthy application forms and waiting for the banks’ approval.  This saves a lot of time taken to process the loan amount.

  • Instant Fund Disbursal

As loans against credit cards are pre-approved, the loan amount is disbursed to the bank account which is linked to your credit card in a very short time. 

If your bank account is not linked to a bank account, then it may take up to 24 hours or even more for the disbursal of funds. However, even in that case, the time taken is way less than that taken for the disbursal of traditional loans.

  • Low Interest  and Processing Fee

Another major advantage is that very low-interest rates are applied on loans against credit cards. Furthermore, it involves a very low processing fee that is applied to these loans. The borrowers can repay the loan in easy monthly instalments. This makes these loans more affordable.

  • No Documentation Required

In most cases of loans against credit cards, you do not need to submit any documents to the banks as the loan issuance is based on the credit card for which documentation would’ve already been complete. Rather, the only thing that you have to do for availing this facility is just to request a loan with your credit card issuing bank. 

Eligibility Requirements for Loan against Credit Card

Here are the eligibility requirements for getting a loan against a credit card:

  • You should be an existing customer of the bank. However, there are also some banks which provide credit card facilities to new customers.
  • You must have a credit card with the bank where you are applying for a loan.
  • Having a good credit score and strong or clean repayment history is necessary to apply.
  • It is easier to get loans against credit cards for people with high or medium income levels. Having a higher income allows you to upgrade your credit card to a card with more benefits , which ultimately will increase your eligibility for getting loans against the credit card.

Documents Required for Loan against Credit Card

There is a very minimal documentation procedure for getting loans against credit cards. The following are some of the documents that your credit card issuer may still require:

  • Any government-approved ID card.
  • A copy of address proof.
  • Attested copy of latest ITR for self-employed people.
  • Copy of PAN card for self-employed people.
  • For salaried employees, you need to produce last three months’ salary slips.
  • Salaried employees also need to provide office ID cards.
  • Recent passport-size photographs.

How to Apply for a Loan against a Credit Card

Getting loans against credit cards is a very simple and fast process. You can apply for the loan both via the online and offline modes:

  1. Online Mode

There are several banks which allow their customers to apply for a loan against a credit card by logging into their credit card account. After logging in, you can enter the amount and the tenure of the loan. The bank might send an OTP to your registered mobile number for authentication purposes.

After the authentication procedure is complete, the funds will be disbursed by the bank to your bank account within a few hours.

  1. Offline Mode

You can also apply for loans against a credit card offline. You can call the customer care provider of the credit card issuing bank. The customer care representative will provide all requisite guidance for the completion of the application process.

Final Words

Taking loans against your credit card is a hassle-free process which one can avail during emergencies. You will be able to repay the amount in small instalments. The process involves very little documentation.

One of the major advantages of this type of loan is that the fund is disbursed in very little time. Furthermore, you also would have to pay a lower interest rate on such loans compared to similar unsecured credit facilities.

Frequently Asked Questions

  1. Do I need to have a good credit score to get a loan against a credit card?

Having a good credit score is important for a borrower before they apply for a loan against a credit card. When you are applying for a loan against a credit card, the bank checks your credit repayment behaviour. Thus, you should try to maintain a good credit score before applying for a loan against your credit card.

  1. Do I need to pay any charges while applying for a loan against a credit card?

Yes, you have to pay a minimal processing fee to the bank before applying for a loan against a credit card.

  1. Will taking a loan against a credit card affect my credit score?

Yes, taking a loan against a credit card will affect your credit score. It is a double-edged sword. If you make your credit payments on time and keep your credit utilisation ratio low, then your credit score is likely to improve. However, missing your payments or having a high credit utilisation ratio will negatively affect your credit score.

  1. What are the interest charges for a credit card loan?

The rate of interest on a credit card loan depends on the credit card issuing bank. Apart from that it also depends on other factors like your credit repayment behaviour and income levels.

Ramya is a qualified lawyer with experience in both public policy and finance. She completed her B.A.LL.B (Hons.) from NALSAR University of Law, Hyderabad and is a registered advocate with the Bar Council of India. She is currently working in the Legal and Compliance department of Wint Wealth, and has previously worked closely with the Department of Economic Affairs, Ministry of Finance and ICICI Bank Ltd, Mumbai.

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Disclaimer: This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The article may also contain information which are the personal views/opinions of the authors. The information contained in this article is for general, educational and awareness purposes only and is not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision, whether related to investment or otherwise, taken on the basis of this article.

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