For many Indian MSMEs and small businesses, unexpected expenses are common. A supplier needs immediate payment, a machine breaks down, or a medical emergency arises. In these situations, a credit card loan is often marketed as a quick, hassle-free solution.
But what exactly is a credit card loan? And is it a smart choice for business owners? This guide explains it in simple terms and helps you decide logically.
related post: Why You Should Never Max Out Your Credit Cards Limit: My Experience with SBI and ICICI Credit Cards
What Is a Credit Card Loan
A credit card loan is a short-term loan provided by your bank against your existing credit card limit. The amount you borrow is deducted from your card limit, and you repay it in fixed EMIs.
Banks also call it:
- Loan on credit card
- Insta loan
- Pre-approved card loan
- EMI loan on credit card
It is different from withdrawing cash using a credit card. Card cash withdrawal charges are very high, while a credit card loan runs on fixed EMIs at lower rates.
you may like to read: why Understanding Credit Cards in India in important: A Real-Life Journey from Confusion to Clarity.
How a Credit Card Loan Works
- The bank analyses your credit card usage and payment records
- You receive a pre-approved offer on your mobile banking app or SMS
- You choose the loan amount and tenure
- Money is transferred to your bank account within minutes or hours
- Your available card limit reduces by the loan amount
- You repay EMIs each month until the loan ends
Interest Rates for Credit Card Loans in India
Interest rates vary across banks but most fall between 12 percent to 24 percent per year.
Below is a general view of major banks:
| Bank | Approx Interest Rate | Notes |
|---|---|---|
| HDFC Bank | Around 15 percent | Instant loan for eligible users |
| Axis Bank | 12.6 to 22 percent | Loan amount can be higher depending on profile |
| SBI Card | Around 15 percent | Encash or Encash Inline facility |
| ICICI Bank | Profile based | Fast disbursal and minimal documentation |
Before taking any credit card loan, compare it with personal loan rates offered to you. Personal loans for strong profiles may start at around 10 percent per year.
Is a Credit Card Loan Good for MSMEs
A credit card loan can help MSMEs in certain situations, but it is not the right choice for every kind of business need. Below is an honest, logical assessment.
When a Credit Card Loan Helps
- You need money urgently
- The amount required is small to moderate
- You want fast disbursal with no paperwork
- Your business cash flow is stable enough to handle fixed EMIs
- The tenure is short, ideally less than 18 months
Typical uses include urgent repairs, small inventory purchase, utility payments, travel, or tight working-capital periods.
When MSMEs Should Avoid a Credit Card Loan
- When you need a large loan amount
- If the business income is inconsistent
- For long-term financing such as machinery or expansion
- If credit card utilisation is already high
- If the offered interest rate is above 18 percent
- If you are struggling with existing card dues
For long-term or high-value needs, other options like personal loans, small business loans, OD/CC limits, or invoice financing are usually more suitable.
Pros and Cons of a Credit Card Loan for Small Businesses
Pros
- Quick access to funds
- No documentation required
- Lower interest compared to credit card revolving balance
- Structured EMIs help with planning
- Useful in short-term emergencies
Cons
- Reduces your usable credit card limit
- Can be more expensive than personal loans
- High utilisation may impact your credit score
- Not designed for long-term business needs
- Missed EMIs lead to penalties
Real Cost Examples of Credit Card Loans
These examples help illustrate the actual financial impact.
Borrowing Rs 50,000 at 15 percent per year
- 12 months: EMI about Rs 4,519
- Total interest approx Rs 4,228
Borrowing Rs 2,00,000 at 15 percent per year
- 24 months: EMI about Rs 9,697
- Total interest approx Rs 32,736
Borrowing Rs 5,00,000 at 14 percent per year
- 60 months: EMI about Rs 11,634
- Total interest approx Rs 1,98,048
Shorter tenure reduces total interest. Longer tenure increases the cost substantially.
Final Verdict
A credit card loan is useful as a short-term emergency tool. It should not be treated as a long-term funding option for MSMEs.
It is suitable when:
- The loan required is small
- Purpose is urgent
- You can comfortably repay within 6 to 18 months
- Interest rate offered is reasonable
It is not suitable when:
- You need large or long-term business capital
- Your cashflow is unpredictable
- The rate offered is too high
Use a credit card loan only when it truly fits your need.
Frequently Asked Questions
Does a credit card loan reduce my card limit
Yes. The borrowed amount is deducted from your available credit card limit.
Is a credit card loan better than a personal loan
Only if you need fast approval and a small amount. Personal loans may offer better interest rates.
Can MSMEs use a credit card loan as working capital
Yes, but only for short-term needs.
Can I close a credit card loan early
Yes, but some banks charge foreclosure fees.
Does it affect my credit score
Timely repayment improves your score. Defaulting damages it.
About the Author
Tabrez writes practical guides for MSME owners, entrepreneurs, and small business leaders across India. BusinessZindagi simplifies finance and growth topics for everyday business owners.
Disclaimer
This article is for educational purposes. Interest rates and policies vary by bank. Readers should verify details with their bank before taking a credit card loan.
Authentic Reference Links
- HDFC Loan on Credit Card
https://www.hdfcbank.com/personal/borrow/popular-loans/loan-on-credit-card - Axis Bank Instant Loan on Credit Card
https://www.axisbank.com/retail/cards/credit-card/instant-loan-on-credit-card - SBI Card Encash Facility
https://www.sbicard.com - Paisabazaar Credit Card Loan Guide
https://www.paisabazaar.com/credit-card/loan-on-credit-card-in-india - RBI Credit Product Guidelines
https://www.rbi.org.in
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