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Credit Card vs Personal Loan: Which One Should You Get?

Jetting off to an exotic location, purchasing your favourite TV, or paying hefty bills-all of these require funds. And when you don’t have sufficient funds, your immediate solution is to borrow money.

This could be either in the form of a personal loan or a credit card.

But, which one would you prefer as a primary source of finance? As a solution to your dilemma, we have dissected the traits of both these financial tools so that you can choose for yourself!

Personal Loans

A personal loan is designed to meet your immediate needs, whether it’s for that fancy home renovation or to fund your business. There are no restrictions on how you can use the money with a personal loan. This ensures more flexibility and convenience. Now let’s take a look at all the pros:

1. Larger Sums

Compared to a credit card, a personal loan lets you borrow a relatively higher amount. Some lenders will also give you a loan that is 6 times your monthly salary. With a personal loan, you can pay off heavy expenses easily, especially the ones that have to be taken care of immediately. You also have a set amount to clear, which means you won’t be tempted to spend more than required.

2. Lower Interest Rates

If you’re borrowing a large amount, the interest rates tend to be lower. Unlike credit cards, you will be saving much more money on interest. The interest rates can go lower, depending on your credit history and your credit score as well. The higher your credit score, the better your chances of getting lower interest rates from your lender.

3. Consistent Repayments

One of the best pros of a personal loan is the fixed repayment schedule. Not only does this help you plan your finances well in advance, but you also don’t have to worry about paying different amounts each month.

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The Pet Peeves

1. Loan Application Process

Getting approval for a personal loan takes time. The lender assesses your credit profile and based on this decides what’s the appropriate loan amount. This could take a couple of days and if there’s an emergency, this wouldn’t be an ideal situation. However, some lenders do offer instant loans. It’s best to do your research and check with your bank if you’re eligible for an immediate loan.

2. Cash Disbursement

After getting your loan approved, you will still have to wait for your lender to release the money to your bank account. Getting a loan isn’t a quick and easy process, and it takes time. If you need money for a medical emergency, a personal loan isn’t the best match. In this sense, credit cards offer more convenience.

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3. Fixed Instalments

Now, this can be a pro or a con, depending on the type of your income. For instance, if you earn a fixed monthly salary, this works great because you can plan your finances easily. But if you’re a freelancer or a commission worker, it can be tricky to clear this fixed amount every month. With credit cards, you can decide the amount you have to pay.

Credit Cards

Think of a credit card as a way of constantly borrowing money without having to clear these dues within a set period. While there is a cap on how much you can use monthly, it helps with small purchases and emergencies. First, let’s begin with the pros of getting a credit card:

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1. More Features

Picking a credit card means you get to enjoy a world of benefits-rewards, cashback, discounts, zero-interest instalment plans, and more. Some cards also let you convert your reward points into air miles, vouchers, or gifts. So, you’re earning money every time you spend. Credit cards also offer an interest-free period, which means your spending doesn’t accrue interest as long as you make the payments.

2. Instant Access to Funds

Unlike a personal loan, you don’t have to fill out an application form and get approval when you want to spend money. You can swipe your card whenever you want, as long as you don’t exceed your credit limit.

3. Lesser Fees

Compared to a personal loan, the fees for a credit card are much lesser. For example, when you get a personal loan, you have to pay application, monthly, and origination fees, including interest. With a credit card, you just have to pay the interest and the annual fee, which can be waived in some cases.

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The Pet Peeves

1. Credit Limit

While you have the flexibility to spend whenever you want, there’s a limit that restricts you. Lenders decide the limit for your credit card, depending on your monthly income. If your salary meets the minimum requirement, your credit limit will be set to twice your monthly salary.

2. Increased Chances of Debt

With a personal loan, you get a fixed amount for a fixed period. But a credit card gives you the freedom to spend however you like. This may result in overspending, especially if you’re not careful. And if you don’t clear your dues monthly, the interest on your outstanding balances will keep increasing.

3. Higher Interest Rates

The interest rates for a credit card tend to be higher when compared to a personal loan. And the interest rates keep increasing if you don’t pay your monthly bills in a timely manner. On the other hand, personal loans have a fixed interest rate.

What Should You Choose-a Credit Card or Personal Loan?

It all boils down to one thing-your requirement. For instance, if you have to make smaller purchases for a while or you need to consolidate your debt, a credit card is the best choice. This way, you can comfortably clear your dues whenever you want.

Credit cards offer a wide range of additional benefits like rewards, discounts, cashback, and more. Some cards also give travel insurance, provided you charge the entire airfare to your card.

However, if you need a lump sum, a personal loan is the better choice. You can plan your finances in advance and repay the loan easily, without worrying about the temptation to overspend. Personal loans can also be used for education expenses, to fund your business, your wedding, and the list goes on.

Before you set out to choose either of these financial products, do your research, and find a lender that gives you the best value on a personal loan or a credit card. You can start by comparing the various options on BBazaar.my.

Once you’ve shortlisted the ideal loan or credit card, you can apply for a personal loan or credit card online. It’s as easy as eating a pie!

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