Personal loans and credit cards are similar in the aspect that they are both lines of credit that you have to repay with some form of additional interest. Both products come with their own unique set of advantages.
Read below to see which product would suit you best based on requirements and budget.
Scope of use:
Both personal loans and credit cards come with a varied scope of use. While credit cards are more geared towards catering to everyday expenses and the occasional big-ticket retail expense, personal loans are more towards handling bigger expenses such as wedding expenses, vacations, remodelling the interiors of your home etc.
Both products do come with limitations. While credit cards deal with the credit limit, loans can give you a maximum amount of RM150,000 though there are personal loans offering much higher loan amounts. In both cases, your income level is a deciding factor in the amount you can borrow. Usually personal loans offer a higher upper limit than credit cards due to the longer tenures involved.
Another important aspect is how long you wish the repayment period would be. Personal loans can offer you longer tenures of up to 5 years whereas credit cards don’t have a fixed tenure as such. The balance amount can be chipped away one minimum monthly payment at a time.
Personal loans do require you to make a monthly payment which is decided upon at the time of acquiring the loan. Unfortunately you don’t have the option of making minimum payments on this. but choosing a longer tenure can result in a lower instalment amount. But this would result in you paying a lot more on interest as compared to a loan with a shorter tenure but higher instalment amount.
Personal loans do offer you the chance to close your loan early in which case, depending on the loan, you may or may not be charged with an early settlement fee.
Both products have a relatively fast approval time. The applications are quite straightforward and hassle-free and provided you meet all the eligibility criteria, they also have similar disbursal or issuance times making it ideal to meet any pressing need.
The single-most deciding factor for rating affordability is the interest rate involved. Personal loans come with an effective interest rate going as high as 24% p.a. whereas credit cards charge an interest rate of around 15% to 18% p.a. on retail transactions and 18% p.a. on cash advances. While personal loans do have a higher interest rate, credit card rates are compounded annually.
Credit cards do offer incentives such as cashback or air miles or reward points but to make the most out of these perks, you need to spend it on the right category, meet the specific spend criteria (if any) and most importantly, pay off your monthly dues in full to avoid interest charges which could eat into your perks.
Besides, most privileges offered by a card come with caps which means a cashback card would offer a maximum of around RM50. There are cards that do not have any limits on the cashback you earn, but the rate at which it earns the cashback is 0.2% making it a less than ideal way to save on your expenses.
Credit cards and personal loans have their own set of advantages and disadvantages. If you’re looking at a loan amount which is relatively small and can easily be paid off in a couple of months, a credit card might come in handy, but larger expenses are better handed with the help of a personal loan.