The outbreak of coronavirus has left people with a crash crunch due to job loss, salary cuts and the shutdown of businesses. As it has resulted in irregular incomes, industry experts say it has increased the demand for monetary support to cover the shortfall of monthly income. However, people today have numerous options such as credit cards, credit lines and short-term loans to meet the fixed monthly expense.
All three options have different risks and costs involved. Therefore, experts say one needs to evaluate before making a choice.
Raghuvir Gakhar, CEO, PC Financial, a digital financial services platform says, “With a short-term loan, one can budget all the expenses much in advance but it’s not the same with a credit card or a credit line where expenses can be higher or lower based on the usage. Even the rate of interest is much lower in the case of loans.”
To get a credit card, one needs a good credit score, pay an annual fee and high penalty if the payment is delayed. In addition to this, there is an inherent risk of overspending, losing the card, misusage and a long list of terms and conditions. Additionally, one needs money immediately and have applied for the credit card, it will at least take a month to reach.
However, Gakhar says, “it is not equally easy for those who do not have enough credit. For them, fintech platforms have eased securing credit with possibilities of meaningful borrowing options to meet urgent financial needs irrespective of where a customer lies in the credit spectrum.”
He further adds, “With options like credit lines which are like unsecured loans, individuals can borrow from a range as low as Rs 2,000 to Rs 5 lakh.”
Some companies also offer innovative solutions like paying online at a merchant site or even scan and pay at any UPI barcode. This enables a digital credit card-like experience for any individual. Unline a loan, one can use the given credit loan over and over again in the given time period.
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Lastly, unsecured short-term loans are available to new credit borrowers with minimum KYC. Unline credit card, one can receive short-term loans within 10-15 minutes.
Gakhar says, “Another benefit is that they are unsecured loans, that are not backed by collateral pledged by the borrower. The short-term loans are suitable to fund large purchases, consolidate credit card debt or any other personal payment that cannot be done with the given income immediately.”
In short, experts say the borrower has to consider all these factors before making a decision. All the options have their advantages and disadvantages, but as the borrower, you have to decide what is the requirement based on your need and make an informed decision.
