Should you get a personal loan or a credit card?
Having a credit card is very convenient. It offers users a line of credit that can be used each month, for up to a fixed amount. For ad hoc purchases and flexible credit usage, credit cards are a godsend.
On the other hand, a personal loan offers flexibility which you can use for any personal expenses.
However, for both credit cards and personal loans, the danger lies in accrued debts. If a person fails to repay the amount at each billing cycle (for credit cards) or loan installment (for personal loans), the interest rates can be pretty high, and can accumulate into a huge debt quickly.
Find out if you should apply for a credit card or take out a one-time personal loan from a licensed money lender.
Personal loans versus credit cards: Pros and Cons
1. Ease and convenience of use
Personal loans
You can use a personal loan for almost anything – be it to fund your wedding expenses, vacation, medical emergencies, or even to pay urgent bills.
Licensed money lenders in Singapore also offer flexible repayment plans, so before you commit to a loan, be sure to discuss and negotiate the terms with your money lender to work out something more comfortable for you.
Find out more about private money lenders’ interest rates and loan tenures here.
Credit cards
Credit cards are an easy and convenient mode of payment. They are widely accepted online and in stores and give you the flexibility to pay for large purchases while protecting your money in the bank. Gone are the days when cash is king – cashless is the way to go now!
With most smartphones today, you can even load your credit card into your phone and pay directly with a simple tap.
2. Rewards and bonuses
Personal loans
Applying for personal loans with banks sometimes may come with freebies (such as a phone, tablet, etc) and cash incentives.
With licensed money lenders, you will usually not get rewards and bonuses. However, if you have a good credit history or borrowing history, or are a returning customer, you can also sometimes get perks such as interest rate reductions, special queue priority, and so on.
Credit cards
One of the most attractive things about credit cards is the rewards and bonuses users get to enjoy. Ranging from cashback to exclusive deals, every credit card has its perks. That is the reason why some people sign up for so many cards.
But don’t forget – having too many credit cards can be dangerous if you overspend or forget to pay your bills. While deals are good to have, it is best to stick to only a handful of credit cards you can manage.
3. High late repayment interest rates
Personal loans
Many of you might be aware that if you miss your loan repayment deadline and repay late, licensed money lenders often charge high late interest of 1-4% a month and late charges of up to $60 a month for each month of late repayment.
Late interest is charged only on the amount that is repaid late.
Credit cards
This is also a major disadvantage of credit cards – their high interest rates. Miss one payment and you will incur a significant debt due to the interest rate. Anyone who owns one or more credit cards needs to be careful not to overspend, as this will be highly detrimental to your finances.
4. Impact of late repayment on your credit score
Personal loans
Taking up a personal loan with a money lender will not affect your credit score. Also, most licensed money lenders do not do credit discrimination, which means even if you have a bad credit score, you will still be able to get a loan with them if you meet all their eligibility criteria
Credit cards
One thing to remember about credit cards is that it affects your credit score. So even while you enjoy the conveniences of a credit card, it is crucial to keep in mind that your actions will affect your prospects of getting a loan.
If you want to get favourable interest rates for bank loans in the future, now is the time to use your credit card wisely and repay all your bills on time to ramp up your credit score.
Although credit cards can build your credit score if repaid on time consistently, if you are finding it tough to manage paying all your credit card bills on time, it can also go in the other direction and negatively impact your credit score.
A bad credit score may affect bank loan approvals if you were to apply for one in the future.
So…are personal loans better than credit cards?
This table summarises the benefits of applying for a credit card versus taking out a personal loan with a licensed money lender to help with large purchases or cash flow issues.
| Benefits | Credit card | Personal loan with a licensed money lender |
| Easy and convenient |
✅ |
✅ |
|
Will not affect credit score negatively |
❌ |
✅ |
| Low late interest and charges |
❌ |
❌ |
| Rewards and bonuses |
✅ |
❌ |
| Flexible repayment plans |
❌ |
✅ |
As you can see, choosing between the two depends on what you deem most important.
If you are making a large purchase for which you can get benefits and cashback with a credit card and you have no issue repaying your bills, a credit card may be a better option.
But if you require short-term funds to tide you through a tough period and prefer to work out a better and more flexible financing option, it may be better to take out a personal loan with a licensed money lender.
Most importantly, we should never accrue any debt that we cannot repay, as it can potentially snowball and cause more future financial problems. So before using your credit cards or taking out any loans, remember to plan a personal budget.
Talk to us about personal loans
Goldstar Credit is an established licensed moneylender under the Ministry of Law. Applying for a personal loan with us is a fast and simple process. You can get your loan approved in less than 30 minutes.
Find out more and apply now.
About the Author
Instituted since 2009, Goldstar Credit is a proficient licensed lender through and through. We pride ourselves on sharing our extensive personal finance expertise and knowledge with anyone and everyone who is keen on learning more about them.
