Salaried employees are you suffering with cash crunch? Know which is better personal loan or credit cards

Imagine if you receive a message and it read saying, "Your salary a/c no. xxxx678945 has been credited with Rs. xxx on November 01, 2018." The joy would be immense and you will be already preparing an endless list of what to do with the amount received. This is the joy of every salaried employee who receives their salary at the beginning of month. Many often use their salary in the first two weeks by just  buying groceries, eating out at fancy restaurants, going out for shopping or simply paying off the monthly EMIs of your new car. However, the trouble comes when the third week approaches, and we begin to count how much penny is left in our pockets. The joy of first two weeks, is now narrowed to think before spending option. 

Situation becomes worse when an unexpected bill makes its way to the list of payments and there is no money left to pay. This surprise expense might be a result of medical emergencies, unplanned home repair, weekend plan, festivals etc.

Hence, for those who have credit cards are left with no choice but to swipe them during the end of month, which leads to further debt burden. 

Anuj Kacker, Co Founder & COO, MoneyTap says, " This happens primarily because the users often fail to read the fine print or understand the consequences of their borrowing choices. The smarter young generation today, however, is looking for better ways to deal with their financial crunch, moving towards alternate sources of finance that can help them in alleviating the financial burden without any fuss."

In Kacker's view, salaried employees are betting big on both personal loans and credit line for all their financial needs.

Here's to understand which option is more practical and convenient, as per MoneyTap. 

A personal loan can be referred to as a fixed amount that is disseminated in a lump sum and is paid back at a fixed interest rate over a specific period of time. Offered as both a secured and an unsecured credit option, loan-seekers usually go for the latter, considering that it does not require any collateral.  

Personal loans are normally used to pay off short-term debts like funding a significant purchase or meeting the expenses of big life events. However, they come with their own set of drawbacks.

Personal loans can be extremely obstinate in terms of the amount borrowed and the repayment schedule. As the amount is disbursed in one go, the rate of interest is charged on the entire amount from day 1.

Moreover, as the repayment schedule is also fixed, so you don't get to choose EMIs convenient for you. The limitations do not end here. The biggest hurdle accompanying personal loans is the prolonged approval process, which makes this option absolutely unfeasible to meet unexpected cash crunches.

Meanwhile, a credit line operates on the lines of a credit card, but with the convenience of cash. Credit line comes with a flexibility of withdrawing the entire approved limit at once or only the amount needed, whenever required. The best part -  interest is charged only on the amount used. And a flexible payment schedule allows the customers to select EMIs convenient for them. 

That's not all; as the credit is repaid, the original credit balance gets replenished. Additionally, the one-time approval process on a credit line ensures that the applicants do not have to apply again to meet any future financial requirements. For salaried professionals, it is the best way to realize their long-awaited travel plans, make small term investments in their home, festive shopping to name a few.

However, considering the pros and cons of both the financial tools, Kacker says, "it can be derived that both personal loan and credit line require the potential borrowers to have at least a fundamental amount of financial discipline of repaying the EMIs on a regular basis."

So, while life is poised to be uncertain, the smartest way to deal with any cash crunch is to weigh the options wisely and stay far from the vicious cycle of debt.