Even if costs like interest rate, pre-closure charges and loan processing fees remain the same for credit card loan and bank personal loan, interest cost of credit card loan become 15 per cent more because of service tax.
For example, if you take a personal loan of Rs 1 lakh from a bank at 14 per cent interest for 24 months, then your first month instalment will be Rs 4,802, in which interest component will be Rs 1,166.66 and principal repayment will be Rs 3635.33. If you take the same loan on your credit card at the same interest rate, in the first month you have to pay Rs 4,976.99 which is Rs 175 more than what you pay on a bank loan. This is because of the service tax of Rs 175 on interest of Rs 1,166.66. This service tax is also applicable when you convert your purchases on credit card to equated monthly instalment (EMI).
However, there are some instances, where credit card loans are preferred over bank personal loans. If the amount you are opting for is less (less than Rs 50,000) and the tenure you want is less than 1 year, then credit card loans become more useful (even with higher cost) because banks generally do not offer personal loans below Rs 50,000 and for less than one year.
Credit cards even offer loans even for six months and for small amounts as low as Rs 10,000. If your requirement for funds is for a short term and you think you can repay it faster, then it is worth going for a credit card loan.