Dont worry if you have overspent the limit on your credit cards—You can convert your outstanding credit amount into a personal loan
By at December 23, 2009 | 12:21 am | Print
If you own credit card and you spent more than enough on your cards.Dont worry we have one option for you. You can convert your outstanding amount into a personal loan. This is very good option because it will drastically save you high interest rate which you will have to pay on your credit cards if you have overspent the limit on your credit cards. Personal loans are charged around 12% to19% per annum while interest rate levied in a credit card lies somewhere between 36% to 44% per annum.
The best part of this deal is ,banks are happily ready to convert your debt since the risk carried by them declines. Banks don’t want to see their clients as defaulter because the outstanding amount would turn into a bad loan and their non-performing assets (NPAs) would increase. That’s why they will promptly extend a personal loan to consolidate your credit card outstanding.
How It Works:
After you choose option converting your credit cards outstanding money into personal loan, the repayment will be done on a regular monthly basis for a specified tenure. The EMI has to be paid by the borrower without a break. This might look disciplined but it could make some people worse-off. It should be noted that even if the credit card issuer insist on a minimum payment of 5% per month, the monthly payment could be high. This is especially valid if one opts for a short term personal loan.
For example if one has an outstanding of Rs 200,000, the monthly payment at 5% will be around Rs 10,000 and if this amount is converted into a one year personal loan at 18%, the personal loan EMI calculator evaluates the monthly payment to around Rs 19666 per month. This will create some problem and will put some extra burden on your budget and may lead to a situation where you start disliking for paying out the loan. Because of that it is important that you select a right tenure where your future safety does not come under question.
Negative Points:
You cant prepay personal loan before some specific tenure even if you got some money and want to pay immediately. There is a hefty fee known as the pre-payment penalty that is levied upon you. On the other hand, there is no such charge if you plan to clear the outstanding credit card bills with your sudden earnings. This is practiced because banks do not want to lose on the interest they expect from you.