If you need so much money within a short period, the answer is always to have a personal loan. Truthfully, if you can go beyond the usual six months of income you get from personal loans, the better. On the other hand, some borrowers swear by credit cards because they’re much more accessible than personal loans.
If you’re confused whether to take on credit card debt or apply for a personal loan, we’ve done the comparison legwork for you. By reading through this post, you’ll learn all about the advantages, disadvantages, and best situations when to use a credit card or a personal loan. Consider each detail to make the best decision on your future financing.
Credit Card Vs Personal Loan: One Primary Difference
Let’s get all of this clear right off the bat:
Credit cards are revolving credit lines. Banks will evaluate your income and payment capacity. In most cases, credit card limits can range from 50-100% of your monthly income. A card’s main focus is to promote commercialism, making them inefficient in emergency situations requiring much more cash.
On the other hand, personal loan allows you to borrow up to six times your monthly income in Singapore. Additionally, banks, qualified financial institutions, and licensed moneylenders can provide you this service. With credit cards, you’re limited only to banks.
As we’ve mentioned earlier, personal loan allows you to borrow up to six times your monthly income. However, some banks and financial institutions can extend your personal loan limit according to your employment stability and bank account money by the application period. Sometimes, they can even shift you from their personal loan proposals to other relevant and much more efficient products.
With licensed moneylenders, you only have six months worth of income available as your total loan limit. Unlike payday loans, you won’t need to pay for it by your next pay cut. Instead, the licensed moneylender spreads it throughout your loan term. Most lenders allow you to pay the total debt amount early too.
Best For: Situations That Require More Than a Month of Income
Truthfully, licensed moneylenders popularized personal loans. Their accessibility and adequate six-month-income loan amount has helped propel business ideas. Furthermore, the bigger-than-usual loan amount helped numerous Singaporeans and foreigners to tide over medical emergencies and difficult financial situations.
When it comes to personal loans vs credit cards, choosing a personal loan gives you a great amount of money. Additionally, the application process is swift, and you deal with fixed monthly payments that do not change. If your credit card limit can’t cope with your financial needs during particular situations, it’s best to apply for a personal loan.
Why It’s Better Than Plastic Cards?
1. Flexible Payment Options
Most banks, financial institutions, and licensed moneylenders supply you with flexible payment options. Truthfully, licensed moneylenders will often stick with the usual fixed monthly payments. However, even these institutions can change the loan term length through negotiation.
2. Higher Loan Amounts Available
On average, borrowers can get up to six months their income through a personal loan. However, all financial institutions, including licensed moneylenders, can provide you further or refer you to other financial products that provide higher loan amounts if you have an established employment and income source.
3. Licensed Moneylender Convenience
Licensed moneylenders in Singapore don’t require high credit scores for a successful personal loan application. You can recover your credit rating by accomplishing your personal loan liabilities with them. While the moneylender can purchase a credit rating to learn more about your spending activities, it has no significant bearing on their loan approval process.
Reasons to Be Cautious About Personal Loans
1. Unsecured Loan
Unfortunately, the ease and same-day release cycle of personal loan cannot have lower interest rates. A personal loan is an unsecured loan because banks are investing in your personage, employment, and risk value. Licensed moneylender are investing in your personage and employment.
With personal loans, you’re automatically classified as a high-risk borrower. Therefore, all financial institutions can give you the highest interest rates possible above the highest penalty fees for late repayments too. In this light, make sure to pay in full and on time each month.
2. Can Start a Debt Cycle
Six months of your income available in an instant is advantageous for you. However, if you get used to getting your wants through personal loans, it’s only a matter of time until you spiral into deep debt. Honestly speaking, personal loans and payday loans target low-income Singaporeans and foreign workers.
If it isn’t an emergency, it’s best to avoid personal loans. It’s best for borrowers to learn money-saving practices and delayed gratification to avoid immense debt. Remember, personal loans highlight borrowers as a high-risk applicant. If you miss one repayment, it can mean an enormous interest fee above your principal.
These are similar products to lines of credit that most banks provide. The best personal loans can outshine credit cards on the basis of loan amounts, but the latter outmatches it with better terms and conditions, perks, and benefits, If you’re a frequent commercial consumer, credit cards are both rewarding and convenient.
You need to have a high credit score and become a preferred borrower from a bank to have the highest approval rating possible. Unfortunately, other financial institutions and licensed moneylenders do not issue credit card, limiting you only to the terms of banks.
Best For: Purchases, Not Emergencies
Credit cards are accessible than personal loans for borrowers after they’ve passed all the necessary requirements and strict screening by banks. However, credit cards remain less useful than personal loans during emergencies because of their credit limits the equivalent of 30-50% of your monthly income. Unless you start gaining higher credit limits, which take time and patience, credit cards will be excellent for purchases only.
Singapore’s top medical institutions do not accept installation payments. Truthfully, your credit card can offset a small part of the total expenses with a single lump-sum swipe, but you’ll face monthly interest rates added above your remaining balance.
Why It’s Better Than Personal Loans?
1. Convenient Payment Option
Credit cards are both revolving credit and a means to access higher bank loans. Manage your credit card expenses well, and you’ll have access to higher-tier financial products from banks and financial institutions. Eventually, you can access case-specific loans too, such as car or housing loans, thanks to your improving credit scores.
Additionally, you have a “retail emergency” financing at your disposal. Unlike personal loans, you’re pre-qualified to take on a credit limit-total loan, requiring no other requirement except you swipe and finish the payment process to use it.
2. One Time Lengthy Application
Truthfully, your pre-qualification is a strict, one-time only process that heavily depends on your existing credit rating. The lengthy credit investigation will take note of your employment, owned properties, recent financial activities, lifestyle, and possible collateral.
However, your waiting for the results is much longer than the actual application process because most of it is between the bank and credit investigators. Plus, applications are mostly online — including requirement submissions.
3. Increases Your Credit Rating
As we mentioned earlier, credit cards allow you to access higher-level, exclusive loan products. Banks continously evaluate your credit card performance and management. If they find you a preferable customer, you’ll receive limited offers for car loans or property financing.
Good credit doesn’t mean you’re always buying using your cards. Your scores improve because you’ve paid your financings in full, without delays, and no penalties.
The Dark Side of Credit Cards
1. Low Credit Limits for Starting Borrowers
Credit cards are evaluation products allowing banks to assess your financial management capacities. Unfortunately, first-time card holders will have access only to a small credit limit equivalent to 30-50% of your income.
The limit grows over time. But, if you need more than one month’s income to deal with emergencies, credit cards aren’t the most viable option. Personal loans are still your best choice.
2. High Interest Rate
Banks can have credit cards that charge you more than 4% interest for your pending balance. Additionally, you can pay penalties for missed minimum amount payments too. Credit card repayments aren’t fixed-amount payments, meaning you’ll need to do some calculations to know your total debt.
Even luxury and preferred borrowers still end up with 3.5% interest when using their cards and only paying the minimum amount. It takes so much more thinking and analysis to properly manage your credit cards.
3. Limited Merchant Installation Payment Availability
Installation payment promos from merchants make credit cards a must-have because of their 0% interest feature. If you ever needed to buy a new appliance immediately, you can save so much from 0% installation promos.
Unfortunately, banks only work with specific merchants for 0% installations. You’ll want to own additional credit cards to take full advantage of these low interest-rate offers, but you might end up with expensive annual fees if you own too many cards.
Here’s a simple table to help you see the major differences between the two
|Personal Loans||Credit Cards|
Debt Consolidation: Does a Personal Loan or Credit Card Work Better?
Debt consolidation’s objective is to help indebted borrowers pay off their remaining debt. Consolidators negotiate and pay for an enormous chunk or the entire loan. Then, they present a long-term, low-interest loan for debtors.
Using either personal loan or credit cards for debt consolidation is unwise because of the following reasons:
Interest Rate: Both personal loans and credit cards have a stellar interest rate because they’re unsecured loans.
Loan Amount: Even if the six months limit with personal loans suffices to pay your entire debt, it’s still ill-advisable due to the high rate. On the other hand, credit cards remain impractical with its less than a month’s pay loan limit.
Which One is Perfect for Your Situation?
A personal loan is perfect during emergencies. Six months of your income is suffice to secure a room and have high-quality Singapore medical care. Alternatively, six months of income is enough to tide over your utilities and avoid disconnection notices.
Credit cards are great retail options. The more you use their services, you gain points for discounts and free items or services. However, you’re going to start at the lowest credit limit — which is less than your current income.
You Can Always Easily Find the Best Personal Loan or Credit Cards With Comparison Websites
If you’re looking for the best personal loans, credit cards, or other financial products in Singapore, comparing bank, financial institution, and moneylender options is the best solution to find excellent deals.
At Moneylender Review, you have access to the latest and in-demand financial products and services in the country. Contact us today to learn more about everything that we can do for you.