At the same quoted rate, a personal loan with a 1% fee costs less than a loan on credit card inside your limit, because that card loan adds 18% GST to every month's interest while the personal loan carries GST only on its upfront fee. Against a personal loan with a 2% fee, a card loan with a flat fee of a few hundred rupees wins at quoted rates up to about 16%, though it blocks part of your card limit until it is repaid. Compare offers on the effective interest rate, the yearly rate once fees and GST are counted.
Why is the quoted rate not the real cost?
A personal loan interest rate is about 10% to 24% a year (2026), set by your credit score and the lender, and its processing fee, often 1% to 3% of the amount plus 18% GST, is usually deducted from the payout.
Card loan offers quote 12% to 24% a year (2025), depending on the card-issuer, usually with a flat fee of a few hundred rupees, sometimes 1% to 3%, as with card EMIs. The catch is tax: GST law exempts loan interest but not interest on credit card services. A loan inside the card limit is billed with your card statement, each EMI carrying 18% GST on its interest; a loan above the limit may be billed separately with GST only on its fee.
Since 1 October 2024, RBI has required a Key Facts Statement showing the annual percentage rate, fees included, for retail loans such as a personal loan. Credit card dues are exempt, so a card loan offer may not show one. Check whether its monthly rate is flat: 1.25% a month flat over 18 months is about 26.8% a year on a reducing balance, before GST.
What do Fatima's two offers cost on ₹3,00,000?
Fatima earns ₹24 lakh CTC, about ₹1,51,600 a month in hand with PF on her full wages (see CTC vs in hand salary). Her father's surgery leaves ₹3,00,000 that insurance did not cover, to repay over 18 months. She has a personal loan offer at 13% with a 2% fee, and a pre-approved card loan at 15% with a ₹499 fee, carved out of her ₹4,00,000 limit. Effective rates here are each loan's monthly cost, fees and GST included, times 12.
| Over 18 months | Personal loan, 13% | Card loan, 15% |
|---|---|---|
| Monthly EMI | ₹18,434 | ₹18,715 |
| Interest | ₹31,817 | ₹36,878 |
| GST on interest | nil | ₹6,638 |
| Processing fee with 18% GST | ₹7,080 | ₹589 |
| Total cost | ₹38,897 | ₹44,105 |
| Effective interest rate | about 16.2% a year | about 18.0% a year |
Either EMI is about 12% of her take-home. The personal loan pays out ₹2,92,920, so she covers ₹7,080 from savings. The card loan's first bill is ₹19,979: the EMI, about ₹675 of GST on that month's interest, and the ₹499 fee with its ₹90 GST. Over 18 months the card route costs ₹5,208 more. What that buys is speed, unless her personal loan offer is pre-approved and as quick: the card loan promises instant disbursal in the card's app, while a personal loan that needs documents can take a few working days.
On the card, the loan takes 75% of her limit from day one, and that part cannot carry new interest-free spending. It usually comes back as each EMI repays principal: ₹2,07,354 is still blocked after six months, 52% of the limit.
When does the card loan come out cheaper?
Effective rate a year on ₹3,00,000 over 18 months, by quoted rate, for a card loan inside the limit:
| Quoted rate | Personal loan, 1% fee | Personal loan, 2% fee | Card loan, ₹499 fee | Card loan, 1% fee |
|---|---|---|---|---|
| 11% | 12.6% | 14.1% | 13.2% | 14.5% |
| 13% | 14.6% | 16.2% | 15.6% | 16.9% |
| 15% | 16.6% | 18.2% | 18.0% | 19.3% |
| 18% | 19.6% | 21.2% | 21.5% | 22.8% |
| 24% | 25.6% | 27.3% | 28.6% | 29.9% |
At the same quoted rate, a card loan with a small flat fee beats a personal loan with a 2% fee up to about 16%, then loses, because GST adds 18% of the rate itself. A personal loan with a 1% fee wins at every rate. Different rates compare cell to cell: a card loan at 13% (15.6%) would beat Fatima's personal loan offer (16.2%); her 15% card offer (18.0%) does not. A loan above the card limit with the same ₹499 fee, billed without GST on its interest, costs about its quoted rate plus a quarter point, 15.3% at 15%, less than either personal loan, so check the offer's GST line.
What does each loan do to your card and credit score?
Credit scores weigh how much of a card limit is in use: if the card-issuer reports the loan within the card's balance, Fatima's card reads 75% used at the start and about 27% after a year. A personal loan leaves her card limit untouched but adds a new loan account to her credit report.
The card loan's EMI also sits inside her card bill, and RBI's card directions of November 2025 allow the interest-free period only when the whole bill is paid by the due date. Pay the EMI but not the rest, and new purchases are charged interest from the day they are made, at about 36% to 48% a year (2026) depending on the card-issuer, as paying only the minimum due shows.
Can you close either loan early?
You usually can, though some personal loans bar closing in the first year, and closing early hurts the personal loan more, because its ₹7,080 fee was paid upfront: if both close at month six with no foreclosure charge, the personal loan works out at about 18.7% a year and the card loan at about 18.2%. A foreclosure charge, where the terms allow one, adds to either, with 18% GST. Personal loan foreclosure charges works out when closing still saves money. With ₹3,00,000 in an emergency fund, she would need neither loan.
Dhi shows an EMI like this inside your monthly cash flow and net worth, and answers which offer costs you less from your own numbers. Dhi nudges when something needs attention, never mis-sells and earns no commissions.
Frequently asked questions
This is general information for salaried individuals in India, not personalised financial advice.
