Personal loans and credit cards are very much alike in that they both provide easy access to cash that you do not have. Both credit cards and personal loans let you borrow money without offering securities and it's important to understand the pros and cons of both options before deciding which might work better for your situation.
Personal Loan Features
- Low interest rates. This is the main reason you would want to get a personal loan rather than using your credit card. Most credit cards in Singapore have an interest rate of 24% per annum, though a few offer lower rates. On the other hand, personal loans have an average interest rate of 5%-8%.
- Borrow up to 4x monthly income. If you earn more than $2,500 a month you will be able to borrow up to 4x your monthly income ($10,000). If you earn less than that, you will be able to borrow up to 2x your monthly income. With credit cards, the credit limit is different for different cards, and also depends on your credit history, so your card limit may be lower than what you get with a personal loan.
You will need to have a number of documents on hand (passport, track record of your tax form, latest account statement, salary slips) and it may take some time till you actually receive the cash.
Are Credit Cards Better Than Personal Loans?
- More convenient.
Borrowing money from your credit card is a lot faster and more convenient than applying for a personal loan. If you are getting the loan to make a purchase, you can simply use your card to make the purchase. A credit card lets you get cash advances anytime, and is definitely the easiest way to get a loan.
- Flexible repayment.
If you use a credit card to access cash, you normally have the freedom to repay the credit as soon as you like. Sure, the interest rate may be much higher, but if you will have the money to pay back your loan 2 months from now, then the extra couple dollars you pay may be worth it. If you're able to pay off your balance in full before the due date, you won't pay any interest at all.
Personal loans generally come with a strict repayment scheme which usually includes a penalty period for partial or full prepayment of your loan. That means that you will have to pay a penalty fee if you pay off your loan sooner than the amount of time offered. That's because if you were to pay off the loan in 2 months, the lender would miss out on all the money it would have made off interest charges over the full 1-5 year repayment period.
If all you need is immediate cash which you can pay back soon, then a credit card may be the better choice.
As well as providing access to easy loans, credit cards may also give you benefits like rewards on your spending, insurance coverage and access to special discounts and deals. Personal loans sometimes do offer sign-up bonuses (free luggage, etc.) but nothing like the many useful benefits you enjoy when you use a credit card.
Credit cards come with high interest rates if you don't repay in full by the end of the month. Annual interest rates averaging 18-24% (even higher for cash advances) mean that you pay a high price for the convenience of borrowing with your credit card. I strongly suggest that you have a budget and timeframe for repaying your balances if you don't have enough to repay it all by each month's due date. The faster you pay it all back, the less debt you will have.
If you plan to pay off your loan over a long period, a personal loan provides the cheapest way to do it, as the interest rates are less than half the average rates offered by credit cards.
For more spontaneous loans that can be paid back quickly (e.g. you're expecting a cash windfall in 3 months), a credit card may provide a more flexible solution, since you can pay off your balance in full as soon as you are able. Credit cards are also a better choice if you have to make a fast financial decision, since you can obtain money much quicker than getting a personal loan.
|Credit Card||Features||Intro Interest p.a.||Standard Interest p.a.||Annual Fee||Minimum Income||We least like||Related links|
HSBC's Revolution Credit Card
|2.50% p.a. for 6 months on balance transfers or 4.88% p.a. for 12 months on balance transfers both with a processing fee of $88||25.9% p.a.||S$150 waived for the first 2 years||S$30,000 p.a. (Singapore Citizens and PR)||Related Links Read our review of HSBC's Revolution Credit Card or view more details of HSBC's Revolution Credit Card. See more HSBC credit cards.|
Citi Rewards Card
|Transfer your outstanding balances on any other bank's credit card or credit line to Citibank at 0% nominal interest rate for 3/6/12 months with an upfront service fee from 1.58%. Eligible for new Citibank customers who apply for Citibank Ready Credit account with minimum $500 loan||26% p.a.||$192.60 waived the first year||S$30,000 per annum (Singaporeans and PRs); S$42,000 per annum (Foreigners)||Related Links Read our review of Citi Rewards Card or view more details of Citi Rewards Card. See more Citibank credit cards.|
Citi Cash Back Card
|Transfer your outstanding balances on any other bank's credit card or credit line to Citibank at 0% nominal interest rate for 3/6/12 months with upfront service fee from 1.58%. Eligible for new Citibank customers who apply for Citibank Ready Credit account with minimum $500 loan.||26% per annum||$192.60 (first year annual fee waiver)||For Singaporeans and PRs, minimum annual income of $30,000, for foreigners $42,000.||Related Links Read our review of Citi Cash Back Card or view more details of Citi Cash Back Card. See more Citibank credit cards.|