Personal Loan vs Credit Card EMI โ Which is Cheaper?
Detailed cost comparison of personal loans vs credit card EMI conversion. Understand interest rates, processing fees, and which saves more.
Interest Rate Comparison
| Type | Interest Rate | Effective Annual Rate |
|---|---|---|
| Personal Loan (bank) | 10.5-14% | 10.5-14% |
| Personal Loan (NBFC) | 14-24% | 14-24% |
| Credit Card EMI | 12-18% (advertised) | 18-24% (effective) |
| Credit Card Revolving | 2-3.5% per month | 24-42% |
Key insight: Credit card EMI rates look lower because they're often quoted as flat rates (not reducing balance). A '15% flat rate' actually equals ~28% reducing balance rate. Always compare reducing balance rates.
When to Choose Personal Loan
โ Loan amount is โน1 Lakh+ (economy of scale for processing fees) โ You need longer tenure (12-60 months) โ Your CIBIL score is 750+ (gets you 10.5-12% rate) โ You can get a pre-approved offer from your bank โ You want a clear repayment schedule
Personal loans offer genuine reducing balance EMI at transparent rates. For amounts above โน2L, they're almost always cheaper than credit card EMI.
When to Choose Credit Card EMI
โ Purchase amount is โน10,000-โน1,00,000 โ No-cost EMI is available (merchant absorbs interest) โ Tenure is short (3-6 months) โ You want instant conversion without loan application โ The credit card offers 0% EMI with subvention
No-cost EMI is genuinely free when the merchant provides interest subsidy. Check if the product price is the same for cash vs EMI โ if it's the same, the no-cost EMI is real.
Cost Comparison โ โน2 Lakh for 12 Months
| Factor | Personal Loan | Credit Card EMI |
|---|---|---|
| Interest rate | 12% (reducing) | 15% (flat) โ 28% reducing |
| EMI | โน17,770 | โน19,167 |
| Total interest | โน13,240 | โน30,000 |
| Processing fee | โน2,000-4,000 | โน0-1,000 |
| Total cost | โน15,240-โน17,240 | โน30,000-โน31,000 |
| Savings | โน13,760-โน15,760 cheaper | โ |
For โน2L over 12 months, personal loan saves nearly โน14,000. The gap increases with amount and tenure.
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