When to Use a Credit Line Instead of a Credit Card

    What is a Credit Line?

    A credit line enables you to borrow money on an ad hoc basis up to a fixed amount that is determined on your monthly income, usually two or four times your monthly income. Normally, there is no need to state any reason for the loan, you can directly call and request for the loan amount or apply for the same online. There are many instances when your loan can be approved in less than 15 minutes.

    Although a credit line seems to be similar to a credit card or any other personal loan, there is an advantageous difference. A credit line is a better mix of both the aforementioned components, it has the flexibility of a credit card, meaning, you have the freedom to repay the loan amount in a flexible manner by making only the minimum repayment amounts and has as low interest rate structures as that of a personal loan.

    When is a Credit Line Most Useful?

    A credit line is most beneficial under the following scenarios –

    • When Your Retail Spending is Limited

    There are many credit cards in the financial market that reward you on your retail expenses such as buying clothes, shoes, bags and so on but most credit cards give you limited rewards or in some cases, no rewards on your non-retail expenses, for instance, if you pay your utility bill using your credit card, you may receive rewards that are negligible or not receive any rewards at all. If you need to pay for any plumbing or electrical wiring or fixing your windscreen, paying using your credit card may not be feasible for many reasons. The important reasons include high interest rate structures and not getting any rewards for your payments. It is advisable to get a line of credit to pay for such expenses in order to maximize your savings.

    • Inability To Repay the Loan Before the Next Billing Cycle

    If your borrowed amount is for a significantly high amount, it may not be possible to repay the same before your next billing cycle. Under such circumstances, it is never advisable to use your credit card for such high expenses as the average interest rate of credit cards in Singapore are 24% per annum. If you charge high amounts to your credit card, it will increase your outstanding debts due to your inability to make high payments on a regular basis and if you do not pay the full outstanding amount on your credit card regularly, the interest rate will compound to a much higher value that your income may not be able to match. Therefore, for expenses you know are “rollover debts”, it is advisable to use a line of credit so your interest rate becomes more manageable.

    When you need to purchase a new house but you have not yet received full payment on your current house, avoid using your credit card or approaching licensed moneylenders on such occasions. Even a personal installment loan may not be the answer here because you may want to pay off your loan early once you receive the balance payment on your house but may have to pay a heavy prepayment penalty for trying to pay an early repayment. A credit line is very useful under such circumstances mainly because you have instant access to money until you get your balance amount with interest rates lower than that of a credit card or a licensed moneylender and they do not have any penalties to end the loan as soon as you receive full payment for your house.

    • You Need Physical Cash Quickly

    There are many instances when you might need hard cash quickly and you might not be able to rely on other credit facilities, for example when you are traveling abroad, you will need to have some physical cash quickly. Under this or similar circumstances, you will want your loan in the form of physical cash. You do have the option of simply using a credit card but it will not be feasible because traveling abroad with your credit card may prove to be expensive due to additional fees and charges that will be charged with every transaction abroad such as a cash advance fee that might usually cost you 6% of the transaction or SGD 15. Therefore, a personal loan with low interest rates and no additional costs can come in handy and help you save rather than waste yours hard earned money in additional charges that will bring you no return.

    Every banking product has its own advantages and disadvantages. Credit Cards are always easier to use than any other line of credit because of their convenience and wide acceptance across the world and no application and approval hassle once you own a credit card. You can use the same credit as and when any need or requirement for financial assistance arises. A credit line on the other hand comes in very handy when you want to save money and invest on your financial emergency because the interest rate of a credit line is one fourth that of a credit card. However, both have the same function and that is to assist you financially and at the end of the day, both are loans of some kind. Any loan can be dangerous when it is used improperly or not used for the intended purpose it was meant to serve. Therefore, it is always wise to use any line of credit sparingly and not for your indulgences.

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