Personal Loan versus Credit Card

    Financial emergencies can arise at any time. It can be a medical emergency that you can’t avoid at any cost or it can be an unexpected travel plan that you can’t miss. Unless you have some savings to fall back on, such emergencies often leave you in a tough spot. It’s in such situations that you consider taking a personal loan or using your credit card. Both the options are easily available and have their own features and benefits. But do you know which one is right for you? Let’s find out.

    How Personal Loans and Credit Cards Work

    Credit Cards

    Your credit card is a line of credit that allows you to borrow money as and when you want. There is a credit limit beyond which you can’t borrow. You can use that limit to make purchases and cash advances. As long as you pay your bill amount in full every month, you don’t even have to pay any interest. For cash advances, however, interest is charged from the day you borrow the money.

    But what happens when you don’t pay off your bill in full every month? You will be charged interest on your outstanding balance. The interest charges on credit cards usually run in double digits, making them one of the most expensive forms of debt. In addition, if you fail to pay at least the minimum monthly amount by the due date, you will attract some penalties as well. But that’s not limited to just penalties. Any delay in card payment can also hurt your credit score.

    Personal Loans

    You can apply for a personal loan from any local or foreign bank/financial institution. Secured or unsecured, you receive the loan amount in lump sum and you will have to pay it back in monthly instalments. The tenure of such instalments is determined on the basis of the terms applicable to the loan.

    These instalments include both principal amount and interest. The interest rate on personal loans is generally lower than credit cards. Also, it may vary from person to person and is determined on the basis of various factors, such as credit score, loan repayment history, income, etc. Apart from interest, there are some other charges as well including processing fee, late payment charges, and early repayment charges.

    How Personal Loan & Credit Card Loan Are Different From Each Other?

    Interest Rates

    Interest rates on credit card loans are generally higher than personal loans. However, if you can pledge an asset as a collateral, you could get the funds at a lower rate.


    Generally, personal loans in Singapore do not require a collateral. However, you can always go for a secured personal loan if you want to lower your interest charges.

    Credit card loans in Singapore also do not require a collateral. Lenders approve these loans on the basis of your income, age, job type, and most importantly, your credit score.

    Borrowing Limit

    For personal loans, banks take into consideration many factors such as your income, amount of debt (if any) and your credit score. Most Singaporean banks allow you to borrow up to four times your monthly income, provided you meet the eligibility requirements.

    For credit card loans, the borrowing limit is based on your credit card limit. Nevertheless, it’s completely at the lender’s discretion.

    How to Decide Which One is Right for You?

    If you need money for a short-term, then, without any doubt, borrowing money on a credit card is the better option, provided you don’t make a cash withdrawal. For instance, if you need money to finance a trip this month and you are sure to repay the amount over next couple of months, you can charge the expenses to your card. Depending on the card you own, you may even earn rewards on your transactions. Taking a personal loan for a short-term loan may prove costlier than credit card, considering the processing fee and early repayment charges involved. However, if you require funds for a longer period, go for a personal loan. For long-term requirement of funds, personal loans prove way cheaper than credit cards.

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