Q: Hi Adhil. I recently took a loan linked to my credit card due to an emergency and got the money instantly as it was a pre-approved loan. However, I didn’t realise that the loan was linked to my card’s credit limit. As a result, the remaining credit limit (i.e. after the disbursal of the loan) on my card is low and not enough to meet my spending requirements. What should I do now? Kindly advise – Saroj Damodar (name changed).
Ans: Hi there. Credit card-linked pre-approved loans are excellent tools for eligible credit card users to quickly raise money often at completive interest rates, making them a great financing facility during an emergency. However, one must read the fine-print to get complete clarity about the features and applicable charges before applying for any loan in order to avoid any unpleasant surprises later on. As far as your query is concerned, I have the following suggestions.
If you feel the balance credit limit on your card is insufficient to meet other spending requirements of yours, you should first check about the prepayment and foreclose charges linked to your credit card-linked loan. You can go through the loan terms and conditions that would’ve been e-mailed to you during the loan disbursal, or get in touch with your bank’s customer care. If there are charges to foreclosing the loan and if those charges are marginal, you may want to foreclose the loan if you have the necessary funds. Another important thing to keep in mind would be the loan is likely to have increased your credit utilization ratio way above the desired 30% mark. This could adversely impact your credit limit until you repay a major portion of your loan. So, foreclosing the loan would bode well with your financial health and your credit score.
If foreclosing the credit card-linked loan is not a viable option, you can check with your bank if they can offer another credit card in your name for your other card spending requirements. You can also compare credit cards from other banks based on your eligibility and spending patterns on a neutral online marketplace, and apply for the one that best meets your requirements. When you get a new credit card, you can use it for your regular spends while continuing to clear your loan EMIs in full on time with your existing card during every billing cycle. That said, also ensure you’re extremely careful about spending with your new card and keep clearing the total outstanding dues in time.
Have a question on personal finance? Ping me on Twitter at @adhilshetty with the hashtag #AskAdhil. The writer is CEO, BankBazaar.com, an online marketplace for loans and credit cards.
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