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Balance Transfer vs Personal loan: What Should You Opt?

The requirement of credit or debt can occur to anyone. What comes to rescue in such situations is either a balance transfer of credit card or a personal loan. Both balance transfer and personal loans are unsecured credit facilities that do not require the borrower to keep anything at stake. However, before opting for any amongst them, the borrower should first hold complete knowledge of them both.

What is a balance transfer?

A balance transfer is transferring the credit card balance to another card that offers a high credit limit. It can be used to pay off credit card debts. The application process for a balance transfer is quick and easy, that involves minimum documentation. The interest rates charged on a balance transfer is 0%. However, there are other fees and charges incorporated into balance transfers. Apart from the 0% benefit, the balance transfer option also provides reward points, discounts and vouchers to those who avail this credit facility.

However, the debts through a balance transfer could be paid beyond a specified limit, which is the set limit for a credit card. Apart, balance transfer of credit card requires you to make small payments each month. Otherwise, the card could be blocked. Further, the 0% charges on a balance transfer are incorporated only for a small period. 

What is a personal loan?

A personal loan, on the other hand, allows borrowers to borrow funds from a  bank or an NBFCs for a maximum period of five years. The fund borrowed through personal loan has an end-user, thus can be used for any purpose.  The bank lends funds to the borrower at an interest rate that is charged over the loan tenure for which the amount is borrowed. Further, the application process for a personal loan is also quick. Many banks even offer online facilities to avail a personal loan. However, to avail a personal meeting, the documentation required and also maintaining the personal loan eligibility factors is a prerequisite.

The interest rates charged on a personal loan is usually high, because of the fact that unlike other loans, a personal loan is unsecured in nature. Apart, personal loans allow people to borrow funds larger than a balance transfer could allow. Thus a large number of debts can be consolidated with it. However, the personal loan comes with loan responsibility in terms of regular payments of EMIs.

Which one to go for?

Both balance transfer and personal loans have their own merits and demerits associated with them. However, their use is beneficial in specific situations. Balance transfers can opt when the debt amount is less, or there are multiple numbers of small debts. Further balance transfers offer more flexibility than personal loans in terms of payment schedule because no fixed repayments are to be made. A personal loan, however,  they can even opt, when paying off debt is not the sole purpose to borrow the credit facility. Also, boosting the credit score can also be a good reason to go for a personal loan. The best way, however, to make the best use of both these credit lending facility is to go for a combination of these two. This can be done by choosing a balance transfer to pay off small debts, and by managing credit cards expenses through personal loans. This way, the borrower will be able to enjoy rewards offered by the balance transfer, and also will be able to boost his or her credit score.
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