Considering a Loan Against Your Credit Card? Here's What You Need to Know

Credit cards have long been a convenient tool for making purchases and managing short-term expenses. But what happens when you’re in urgent need of funds and don’t want to go through the lengthy process of applying for a personal loan? This is where a Loan Against your Credit Card comes into play.

Easy to access and quick to disburse, a Loan on Credit Card can be a smart financial solution—if used wisely. In this article, we break down how these loans work, their benefits and drawbacks, and how to use them efficiently.

What is a Loan Against a Credit Card?

A Loan Against a Credit Card is an unsecured loan offered by your credit card issuer, typically based on your credit limit, usage history, and repayment behaviour. Unlike personal loans that may require documents and approval time, these loans are often easily approved and can be disbursed instantly into your account.

It’s essentially a cash advance facility—but structured as a loan with fixed EMIs, lower interest rates compared to regular credit card usage, and a defined repayment tenure.

How Does It Work?

Let’s say your credit card limit is ₹2,00,000, and you’ve only used ₹50,000. Based on your profile, your card issuer may allow you to borrow up to ₹1,00,000 as a Loan on Credit Card. This loan amount does not reduce your available card limit permanently, but is adjusted during the tenure of the loan.

The repayment is made through monthly EMIs, and the amount is billed separately from your regular card transactions. The EMI is added to your monthly bill.

Leading private sector banks like ICICI Bank offer this facility to eligible credit cardholders with attractive interest rates and flexible tenures, often without the need for documentation or collateral.

Key Benefits of a Loan on Credit Card

1. Instant Access to Funds

The biggest advantage is speed. Funds are usually transferred within minutes, making it ideal for emergencies, be it a medical bill, home repair, or travel expense.

2. No or Minimal Documentation Required

Since the loan is usually considered on the basis of the credit available on your credit card, you don’t need to submit income proof or go through lengthy verification.

3. Flexible Repayment Tenures

Most banks allow you to choose from a range of EMIs, up to 60 months, based on your repayment ability.

4. Lower Interest Rates than Revolving Credit

The interest on a loan against a credit card is generally lower than the interest on unpaid credit card balances. Some banks also offer zero processing fee promotions for select customers.

5. No Impact on Credit Limit (Fully)

Only the loan amount is blocked from your credit limit, and the limit is gradually restored with each EMI payment.

Points to Consider Before Taking a Loan Against Your Credit Card

While the benefits are plenty, there are a few things you should be mindful of before applying:

1. Check Your Eligibility

Not all cardholders are eligible. Eligibility depends on your credit score, repayment track record, and usage history. You can check your loan offer on the bank’s app or customer portal.

2. Understand the Interest Rate

While rates are lower than regular card interest, they can still be higher than other loan options like personal loans, especially for longer tenures. Read the terms carefully.

3. Watch Out for Prepayment Charges

Some banks may levy a pre-closure fee if you choose to repay the loan early.

4. Keep EMIs Within Budget

Though EMIs are fixed, they still add to your monthly outflow. Avoid over-borrowing. Use online EMI calculators to plan ahead.

5. No Tax Benefit

Unlike home or education loans, a Loan on Credit Card doesn’t offer any tax deduction on the interest paid.

When is a Loan Against Credit Card a Good Idea?

• During Financial Emergencies: Quick disbursal can be a lifesaver in urgent situations.
  
  

• When You Need Short-Term Liquidity: If you’re expecting funds in a few months, this can bridge the gap effectively.
  
  

• If You Want to Avoid Credit Card Revolving Debt: Instead of rolling over dues at 35-40% interest, converting to an EMI loan at 12-18% is a smarter choice.

When You Should Reconsider

• For Long-Term Large Expenses: A personal or secured loan may offer better rates for longer terms.
  
  

• If Your Repayment Capacity is Uncertain: Missed EMIs will affect your credit score and incur penalties.
  
  

• If You Have a Low Credit Limit: The loan amount will be small, and may not meet your needs.

How to Apply for a Loan on Credit Card

Most major banks offer multiple ways to apply:

1. Internet Banking Portal
   
   

2. Mobile Banking App
   
   

3. SMS or Missed Call Facility
   
   

4. Customer Care Hotline
   
   

Leading institutions like ICICI Bank have simplified the process even further by offering Loan on Credit Cards through their app, where eligible customers can view loan offers instantly and select their preferred EMI plan.

Tips to Use the Facility Wisely

• Set up auto-debit for your EMIs to avoid missed payments.
  
  

• Avoid using the loan amount for discretionary spending.
  
  

• Compare the loan rate with other options like personal loans or BNPL plans.
  
  

• Monitor your credit score, as this loan contributes to your credit exposure.
  
  

What Happens If You Default?

Just like any other loan, missing EMIs can lead to:

• Late payment charges
  
  

• Increased interest burden
  
  

• Negative impact on credit score
  
  

• Reduction in future credit eligibility
  
  

Hence, it’s crucial to borrow only what you can comfortably repay.

Final Thoughts

A Loan Against your Credit Card can be a reliable and convenient option for managing unexpected expenses or urgent cash needs. With quick approvals, flexible repayment, and minimal paperwork, it strikes a balance between ease and efficiency.

That said, it’s still a form of debt and should be treated responsibly. Evaluate the Loan on Credit Card against your actual needs, other borrowing options, and your monthly budget.

Financial institutions like ICICI Bank offer customer-friendly features such as zero processing fees for select cards, digital application journeys, and real-time eligibility checks, making it easier for you to make the right choice at the right time.

With proper planning, a credit card loan can work to your advantage without affecting your financial stability. Use it wisely, and it could be a powerful tool in your financial arsenal.