Credit cards and personal loans are both lines of credit. Yet most people in Singapore opt for credit cards to help them make purchases as they are easily reachable. However, these two credit lines can be taken advantage of when you know the best time to use them. Below are the differences between the two credit lines and also the best times to make use of each.
Personal loans from a legal moneylender are an unsecured type of loan. This loan when approved you are able to get a lump sum which you can utilize for several purposes. Normally personal loans go for a minimum period of about 6 months and can go up to 5 years. You also have to pay fixed interest on this loan and fixed repayments for each month through the loan period.
Most moneylenders in Singapore charge an origination fee on the loan. Clearing your loan earlier than the set period will mean you incur some pre-payment penalties.
Credit Cards Have An Aspect Of Rolling On Your Debt
Reasonably, credit cards have no “end-date” and because of this, it’s a rolling debt. Since credit cards come with a set credit limit, you are able to continue using it thus carrying forward your debt provided that you make minimum payments every month. It’s for this reason that credit cards can be “dangerous” because it’s easy to roll over your debts. However, you will end up accumulating more interests as well as balances every month which in time get out of control for a cardholder.
The good thing with moneylender personal loans, you will not be able to take out additional loan money without putting in a new loan request. When it comes to the interests charged, a credit card’s rates are normally higher with about 26 % each year. On the other hand, personal loans rates range from 8 to 15% each year. Because of the individual features of these two credit line types, you are now able to take advantage of their use and this depends on what you use them for.
Use Moneylender Personal Loans When
Making Large Purchases That Take A Longer Repayment Period
You could be planning to purchase some furnishings for the new home and anticipate spending about $12,000 for a bedroom set, sofa, dining table, and a coffee table. With this, the credit limit on your card is only $5,000. This means making use of the card isn’t an option. When this is your situation, applying for a money lender personal loan of about $12, 000, that allows you to repay monthly instalments of $1,000 may possibly be the best choice for you.
On the flip side is that you may consider splitting the entire bill between 2- 3 credit cards. However, the negative aspect of this is that the rates of interest you will have to pay will possibly be twice the amount. And this can also build up to a rather a huge amount.
The occasions that you can consider making use of your credit card is in times when the retailer is offering you zero percent payment scheme on your credit card. In such a case, you get to save on payments of interests as well as the origination fee chargeable. However, the credit limit will be locked down meaning you possibly won’t be able to use your card during the time your debt is outstanding.
You Need Financial Discipline
For those individuals who are not able to resist the desire of buying and yet are already in debt, choosing a moneylender personal loan may be better. This option will help you pay off your debts better than the credit card that gives you rolling credit.
The good thing with a moneylender personal loan, you will access a given amount of credit as well as have a fixed repayment plan for each month throughout the loan tenure. This is better than a credit card that only requires you to pay a minimum of $50 each month.
For Balance Transfers
Balance transfers are a financial tool that will assist you in reducing your debt. This tool is available to individuals as a “loan” and in form of a credit card. Basically, balance transfers shift all your existing loans into one consolidated loan which is on an interest-free credit line or credit card. This allows you more time for you to repay outstanding debts and you do not incur any high interests.
For example, given that you have existing debts on your current three credit cards that total $12,500. Within one year, you will owe the bank an amount of $15,750. From this amount, the total interest charges amount to $3,250.
When you transfer the debts owed on these 3 credit cards and combining them into one balance facility, you get to pay rates in the range of 0 to 7% plus processing fees. This, in turn, will help you reduce your payments on interest by a big margin.
Also, the terms will dictate whether you will be charged a one-off processing fee and any effective rates of interests. At any rate, the charges will be a lot cheaper compared to repayment of debts on each of your credit cards over a period of one year. Some moneylenders might give you interest-free tenure, thus if you are able to rush and pay off debts within this period you will be saving a lot of money.
When compared to personal loans, a balance transfer will give you more flexible settlement plan because the amount paid each month isn’t fixed. This means it’s for you to repay the minimum. Yet, in so doing the purpose of a balance transfer will not have been achieved to start with.
Therefore, consider your financial needs carefully so you can choose the best credit line for you. Think of the time period you require in repaying the debt, the interests charged along with your financial discipline.
Finally, keep in mind that defaults and late payments on all credit lines will affect your credit score. Thus depending on the choice, you make, ensure you make timely repayments to help keep your credit records clean.