What is a credit card loan?
A credit card loan is an unsecured credit facility. It is tied to the credit card holder’s unused credit limit. In this, instead of using the credit card to make any purchases, the credit card holder withdraws funds generally transferred to a bank account.
Further, the amount borrowed is simply blocked or drawn from the credit card holder’s credit limit, depending on the issuer’s policy. The interest rates are generally higher than those on regular personal loans, and repayment is structured in a planned way over fixed monthly payments.
How does it work?
The eligible customers are provided with a loan offer from their credit card issuer using internal eligibility criteria such as the strength of their credit score and repayment history. The loan amount is generally transferred instantly or within a few working days, once the basic formalities are completed.
This loan is then repaid over tenures up to 60 months. Processing fees tend to range around 1-2%. Interest begins accruing from disbursal without interest interest-free period.
Why rising defaults matter
With recent data, it is now clear that loan usage in the country is rising. Still, so is stress in repayments. Gross non-performing assets (NPAs) in the credit card segment rose 28.4% year on year to ₹6742 crores as of December 2024. Not only this, but defaults have also surged five times since the last five years, i.e., 2020. Whereas the total credit card spending in May 2025
Whereas, the credit card spending in the nation rose to ₹1.89 lakh crore in May 2025, reflecting a 14.5% year-on-year and 2.7% month-on-month growth, according to data from the Reserve Bank of India (RBI). This rise was supported by 7.6 lakh net new credit card additions, suggesting a strong consumer appetite for credit-based transactions.
Therefore, keeping the above factors in mind, it is important for credit card holders to efficiently plan their credit card spending and take proactive steps to avoid missing out on credit card bills, EMI and pending payments.
Points to note before opting in
A credit card loan provides comfort and quick access to funds. Still, it carries higher costs and can even damage your credit score if not repaid promptly. That is why, before applying for any credit card-related loan, you should compare and check with other loan options before proceeding. Regulatory warnings and caution around unsecured lending and retail credit continue to hold their significance amid rising delinquencies.
How can you make the most of your credit card loan?
- Check for zero-interest or low-cost offers: Several lending institutions provide promotional zero-interest credit card loans for select tenures. This is ideal for meeting short-term needs if repaid within the offer window. Hence, you can discuss this with the concerned customer service team of your lending institution before going ahead with any such loan offer.
- Align loan tenure with income cycles: You should select a repayment period that suits your salary or cash flow pattern to ensure that you avoid late fees or missed EMIs.
- Avoid converting to a full limit: Be careful with debt and borrow only what you essentially need. Ensure that you retain some credit limit so that you are able to maintain your credit utilisation ratio and keep your credit score healthy.
- Track hidden charges: Look beyond just the offered interest rates. Other charges, such as processing fees, hidden expenses, pre-closure penalties, and overdue charges, can also significantly raise the loan’s total cost. Keep a track of such expenses and ensure that they remain within your budget.
- Use for planned spends only: Credit card loans work best when used for well-planned and predictable expenses such as electronics, education, personal insurance, etc., not for lifestyle splurges or irresponsible emotion-based spending.
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Disclaimer: Mint has a tie-up with fintechs for providing credit; you will need to share your information if you apply. These tie-ups do not influence our editorial content. This article only intends to educate and spread awareness about credit needs like loans, credit cards and credit scores. Mint does not promote or encourage taking credit, as it comes with a set of risks such as high interest rates, hidden charges, etc. We advise investors to discuss with certified experts before taking any credit.
