Personal Loan vs Credit Card:
Which Is Actually Cheaper?

You need ₹1.5 lakhs. Your credit card limit covers it and you could just swipe. Or you could apply for a personal loan, wait a day or two, and get the money at a lower headline rate. Which one actually costs less?

The answer is almost always the personal loan, but the gap is smaller in some situations and larger in others. The thing that catches people out is that credit card borrowing has several cost components that don't show up in the advertised rate.

The actual cost of each option

Cost Component	Personal Loan	Credit Card EMI	Credit Card Revolving
Interest rate	10.5% – 24% p.a.	12% – 18% p.a.	36% – 42% p.a.
Processing fee	0.5% – 3%	1% – 2% one-time	None
GST on fees	18% of processing fee	18% of processing fee	18% on interest
Prepayment charge	Nil to 4%	Usually 3%	None
Missed payment charge	Penal interest	Late fee + penal interest	Heavy penalty

Notice that credit card revolving, which is what happens when you pay only the minimum due each month, runs at 36 to 42% annually. That's not a typo. If you're carrying a balance on your credit card and only paying the minimum, you are paying more than 3 times what a personal loan would cost.

A real numbers comparison

Let's take ₹1.5 lakhs borrowed for 18 months and run it through both options with typical rates:

Scenario	Interest Rate	Monthly Payment	Total Interest
Personal loan (good profile)	12% p.a.	₹9,100	₹13,800
Personal loan (average profile)	18% p.a.	₹9,500	₹21,000
Credit card EMI conversion	15% p.a.	₹9,300	₹17,400
Credit card revolving (minimum pay)	38% p.a.	Variable	₹43,000+

The revolving credit card scenario is included because it's what actually happens to millions of Indians who tell themselves they'll pay it off next month. That ₹1.5 lakh can end up costing ₹43,000 in interest if you're stretching it out over 18 months at minimum payments.

When a credit card EMI conversion makes sense

Credit cards have an EMI conversion feature where you can convert a large purchase or an existing balance into equal monthly instalments at a lower rate, typically 12 to 18% depending on the bank. This is often called "convert to EMI" in your banking app.

This option is worth considering when:

• The amount is under ₹1 lakh. For smaller amounts, the personal loan application process and processing fee may make the credit card EMI option more practical, even if it's slightly more expensive.
• You need the money immediately. Credit card EMI conversion happens instantly. A personal loan takes 1 to 3 days even for pre-approved offers.
• Your personal loan rate would be above 18%. If your CIBIL score means you'd get a personal loan at 20% or higher, a credit card EMI at 15% is actually cheaper.
• The tenure is 6 months or less. For very short borrowings, the personal loan processing fee percentage becomes a bigger part of your total cost.

When a personal loan is clearly better

• Amount above ₹2 lakhs. The interest rate difference compounds significantly over larger amounts and longer tenures.
• Tenure longer than 12 months. The longer you borrow, the more the rate difference matters. Over 3 years, even a 2% difference can mean ₹15,000 to ₹30,000 in extra interest.
• You have a good CIBIL score. If you can get a personal loan at 11 to 13%, that will almost always beat credit card EMI rates of 15 to 18%.
• You want to pay off the principal faster without penalty. Personal loan prepayment rules on floating rate loans are more favourable.

The one thing people forget to factor in

When you convert a credit card balance to EMI, your available credit limit drops by the full amount. So a ₹1.5 lakh EMI conversion on a card with a ₹2 lakh limit means you're left with only ₹50,000 in usable credit for the duration of the EMI tenure. If you need that credit availability for emergencies, it becomes a problem.

A personal loan doesn't touch your credit card limit at all. It's a separate line of credit entirely.