Know the Difference: Loan Against Credit Card vs Pledging Mutual Funds

There are various aggregator platforms available that could help individuals to compare interest rates while opting for a personal loan.

However, a spike in interest rates on loans has resulted in individuals relooking at the debt options, with an eye on whether they prefer to pay loans via higher equated monthly installments (EMIs) or go in for extended loan tenure.

In this regard, loans against credit cards and pledging mutual funds are a few of the options that are available.

Typically, loans against credit cards fall in the category of personal loans that are unsecured, and an individual can gain a loan immediately without submitting any documents.

It is also possible to get a personal loan by pledging mutual fund investments belonging to both the categories of equity and debt funds. In this regard, the units of mutual funds are used as collateral while the investor continues to retain ownership.

It is important to note that credit cards provide instant financial assistance, a loan gained against mutual funds has additional benefits, which includes competitive interest rate, and fast disbursal, besides the benefit of continued returns.

For loans against credit cards, banks tend to block the cash withdrawal limit on the cards. This results in a borrower being unable to use that amount unless the repayment is initiated.

At the same time, a loan against mutual funds solves the dual purpose of meeting financial necessity while preserving the investment. Besides, the units will continue to earn returns depending on the mutual fund scheme.

A loan gained against a credit card is regarded as unsecured. On the other hand, a loan against mutual funds is secured and is provided at a relatively competitive interest rate. Considering the interest is calculated on the utilised loan amount, a borrower can repay the amount in EMIs.

There are no documents required to gain loans against credit cards. However, loans against mutual funds call for a few documents, and only after that, the loan will be disbursed in a stipulated timeline as agreed upon by the lender.

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