Secured vs Unsecured Loan: Understanding Loan Against Credit Card

Have you ever found yourself in urgent need of funds- maybe for a sudden medical expense, a travel booking or an unexpected big-ticket purchase- but didn’t want to dip into your savings or apply for a traditional loan? If you hold a Credit Card, there's a quicker option right in your wallet: a loan against your Credit Card, also known as Credit Card Loan or Loan on Credit Card. This kind of loan is gaining popularity because of its speed, minimal paperwork and convenience. In this blog post, let us know more about this type of loan and how it can meet your financial requirements.

What is a Loan Against a Credit Card?

Let us first take a look at what a Loan Against Credit Card is. It is a loan that is offered to select Credit Card holders. The loan amount depends on how you use your Card, your spending habits, repayment history and your credit record. This loan is separate from your existing credit limit and the money is deposited directly into your Savings Account. If you already have an ICICI Bank Credit Card, you do not need to provide any documentation.

Understanding Secured vs Unsecured Loans

When you are thinking of different borrowing options, it is important to understand the difference between a secured loan and an unsecured loan. These two types have different loan terms, interest rates and risks.

A secured loan is backed by collateral, which means you offer an asset like a house, vehicle, Fixed Deposit or even gold to the lender, as security. This asset assures the lender that they can recover their money if you do not repay the loan. Because of this added security, secured loans usually have lower interest rates, higher loan amounts and longer repayment terms. The risk? If you default on the repayment of the loan, the lender has the legal right to seize the asset to recover your dues.

Let us take a look at some common examples of secured loans.

• Home Loan: When you avail a Home Loan, the property you are buying works as collateral. The bank retains the right to the property until you repay the loan in full.

• Vehicle Loan: This loan helps you finance the purchase of a car or a two-wheeler. The vehicle is the bank’s property until you pay off the loan.

• Loan Against Property (LAP): With this loan, you pledge your existing residential or commercial property in exchange for cash. This option is often used for large expenses like business investments or higher education abroad.

On the other hand, an unsecured loan does not need collateral. Approval relies entirely on your credit score, income and repayment history. These loans are more convenient and quicker to get as they require minimal documentation. Since there are no assets pledged as security, lenders see them as riskier. If you default on the repayment of an unsecured loan, you won't lose an asset, but it can seriously affect your credit score and ability to borrow in the future.

Let's see a few examples of unsecured loans.

• Personal Loan: You can use this loan to cover various personal expenses such as weddings, medical emergencies or vacations.  Since it’s an unsecured loan, no collateral is required and approval is based on your credit profile.

• Salary Advance: Some banks and financial institutions provide short-term loans based on your monthly income. These loans are usually paid back over a few months and are great for managing temporary cash flow issues.

  Choosing between a secured and an unsecured loan depends on your financial goals, how urgent your needs are and whether you are comfortable pledging an asset to the lender.

Is a Loan Against Credit Card Secured or Unsecured?

A Loan Against Credit Card (also known as Credit Card Loan or Loan On Credit Card) is typically an unsecured loan. This means you don’t need to pledge any assets. ICICI Bank offers loans based on your credit history, your repayment record and the Bank’s eligibility criteria.

Since there is no collateral, this loan doesn’t require paperwork or asset checks. Interest rates might be higher than those of secured loans, but a Credit Card Loan offers structured repayments with EMIs, making it a better option for short-term needs.

The loan amount might reduce your credit limit and is often provided instantly, with flexible EMI repayment options. According to RBI guidelines, unless you pledge a tangible asset, these loans are classified as unsecured loans.

How does a Loan Against Credit Card work?

• Eligibility Check: ICICI Bank pre-selects eligible Credit Cardholders based on factors such as credit score, spending patterns, repayment history and Card usage.

• Minimal Documentation: Since you are already a Credit Card holder, there's no need for additional documentation. ICICI Bank takes your details directly from your existing account.

• Quick Approval: Approval is often instant, especially for ICICI Bank Savings Account holders. Once approved, the loan amount is disbursed directly to your Savings Account.

• Flexible Repayment: The loan has flexible tenure options of up to 60 months, depending on the loan amount and your preferences. The EMIs are added to your monthly Credit Card bill.

Conclusion

A Loan Against Credit Card or Credit Card Loan is considered an unsecured loan. This means it doesn’t need any collateral or assets as security. With quick disbursement and easy access, it is a suitable solution for short-term financial needs. If you have an ICICI Bank Credit Card, you might already be eligible for such a loan with flexible repayment options. Before you avail this loan, think about your ability to repay it, compare interest rates and see how they fit with your finances. Mindful planning can help you make the most of this convenient credit option.