💳 CREDIT CARDS · DIRECT ANSWER
Credit Card vs Personal Loan: The Same ₹2 Lakh, Five Times the Cost
THE DIRECT ANSWER
Carrying ₹2,00,000 on a credit card at 42% and repaying ₹10,000 a month takes 35 months and costs ₹1,49,978 in interest. The same ₹2,00,000 as a personal loan at 14% over 24 months costs ₹30,462. Same money, same purpose: roughly five times the interest. If you already carry a card balance you cannot clear this month, a personal loan is almost always the cheaper instrument.
What is the real cost difference?
| ₹2,00,000 borrowed | Credit card | Personal loan |
|---|---|---|
| Rate | 42% p.a. | 14% p.a. |
| Monthly payment | ₹10,000 | ₹9,603 |
| Time to clear | 35 months | 24 months |
| Interest paid | ₹1,49,978 | ₹30,462 |
| Total repaid | ₹3,49,978 | ₹2,30,462 |
You pay ₹1,19,516 more: and stay in debt eleven months longer: for the convenience of leaving it on the card.
Why is credit card interest so high?
Card interest is quoted monthly, typically around 3% to 3.75% a month, which reads as a small number. Annualised, that is roughly 36% to 45%. It also compounds monthly, and on most cards a revolved balance means new purchases start accruing interest immediately: the interest-free period is lost until the balance is cleared in full.
💡 THE KEY INSIGHT
A credit card is a payment instrument that can also lend. A personal loan is a lending instrument. Using a card as a loan means paying convenience pricing on a borrowing need: which is precisely the most expensive way to borrow available to most salaried people.
When is a card still the better option?
- You will clear the full statement balance on the due date. Then the effective interest is zero and you keep the rewards. This is the only scenario where the card genuinely wins.
- Very short bridge: a few weeks. A personal loan carries processing fees and a fixed term; for a three-week gap the card can work out cheaper.
- A genuine no-cost EMI offer with the discount preserved. Check whether the merchant discount is being withdrawn to fund the "no cost": often the interest is simply relabelled.
Note what is not on that list: paying the minimum due. Paying only the minimum is how a manageable balance becomes a multi-year debt: we worked through exactly that in Ajay's case.
Should I move an existing card balance to a personal loan?
Usually yes, if three things hold:
- The loan rate is materially lower than the card rate: at 42% versus 14%, it is
- Processing fees do not eat the saving: compute total repayment, not just the rate
- You stop using the card for new spending. Consolidating and then re-running the balance leaves you with both a loan and a card bill
That third condition is the one that fails most often. The loan solves the arithmetic; it does not solve the spending.
Assumptions
Credit card at 42% p.a. compounded monthly with a fixed ₹10,000 monthly payment and no new spending. Personal loan at 14% p.a. reducing balance over 24 months, excluding processing fees, insurance and GST on charges. Card rates commonly range 36% to 45% and personal loan rates vary with credit profile: check your own schedule of charges and loan offer.
The one-line summary
A credit card is free money for 45 days and among the most expensive debt in India after that. If you cannot clear the balance this month, move it to a cheaper instrument: and stop spending on the card while you do.
Frequently asked questions
Substantially. On ₹2,00,000, a credit card at 42% repaid at ₹10,000 a month costs ₹1,49,978 in interest over 35 months. A personal loan at 14% over 24 months costs ₹30,462: roughly five times less, and clears the debt eleven months sooner.
Typically 3% to 3.75% per month, which annualises to roughly 36% to 45% with monthly compounding. Rates are quoted monthly, which makes them look smaller than they are. Check your card's schedule of charges for the exact figure.
It often helps, because it reduces credit utilisation: the share of your card limit in use: which is a significant scoring factor. The benefit disappears if you run the card balance up again while repaying the loan.
Sometimes the interest is absorbed by the merchant, and sometimes it is built in by removing a discount you would otherwise have received. Compare the no-cost EMI price against the full upfront price after discount. GST on any interest component may still apply.
See your own numbers: Credit card payoff calculator
Figures are illustrative at the stated assumptions. Card and loan rates vary by issuer and credit profile. Educational content only, not personalised financial advice.