If you are looking out for some extra cash, both personal loans and credit cards can be great financial tools to help you get the funding that you need.
But, the first thing is for you to be clear on what you are taking a personal loan or getting a credit card for.
Essentially since you are borrowing money that you don’t have yet and that can lead to some serious financial repercussions.
I share below whether you should consider personal loans or credit cards.
Personal loans or credit cards?
There are times when it is better to have personal loans than credit cards.
Read on my sharing below.
1. Personal loans have lower interest rates which you can use for larger purchases
If you need to borrow a large lump sum of cash that you can’t pay off quickly, you should get a personal loan. This is because personal loans offer lower interest rates than most credit cards.
For example, the interest can vary from 4% to 9% p.a. for personal loans versus 8.88% to 18% p.a. for credit cards.
Think about it, if you can’t pay the money back immediately, you are going to be looking at some very hefty interest charges on your credit card.
2. Personal loans can be used to consolidate debt
A personal loan can be a means for you to get a fresh start on your finances.
By consolidating your debt with a personal loan that offers a much lower interest rate than paying multiple loans and credit cards at the same time, you get to simplify your debt and regain control of your financial situation.
While you CAN do this with a credit card (0% balance transfer, cash advances and etc.) you might want to consider the following facts first.
3. You can only ‘borrow’ as much as your credit card limit
Most credit cards have a credit limit which is set for you by the bank based on your credit history and your level of income.
So depending on what your credit limit is that’s only as much as you are going to be able to use to fund whatever it is you want to do with the money.
And that is not to say that personal loans will instantly loan you the money. This is because the banks will still evaluate your debt service ratio to ensure you can pay the bank before they disburse the loan.
4. Credit cards require much, much more discipline
Imagine this: you have made your purchase and now you have spotted something else that caught your fancy. You’ll just add it to the credit card’s bill and pay it all off later, right?
Wrong!
Just because you aren’t literally handing over cash for something, doesn’t mean you’re not spending it.
From a psychological perspective, a personal loan makes you feel the pinch more than when you are out and about freely swiping a credit card. After all, that cash is what you are taking out of your account.
Whereas with a credit card, you are just adding debt by spending money that you don’t have. And make no mistake; if you let your credit card spending get out of hand, you face the risk of falling into major debt.
Final thoughts
There you have it! Those are the reasons why a personal loan can be a better financing option than getting a credit card.
Why not check out this free personal loan comparison tool by CompareHero to find the best personal loan deals in Malaysia today?
Read more: How to apply for a credit card online in Malaysia
