Friday, April 22, 2016

When Should You Get A Personal Loan And Not A Credit Card?


If you’re looking out for some extra cash, both personal loans and credit cards can be great financial tools to help you get the funding that you need. But the first thing is for you to be clear on what you’re taking a personal loan or getting a credit card for. Essentially since you are borrowing money that you don’t have yet and that can lead to some serious financial repercussions.

However there are times when a personal loan trumps a credit card and here’s what you need to know before you choose which one you want.

1) Personal Loans Have Lower Interest Rates Which You Can Use For Larger Purchases
If you need to borrow a large lump sum of cash which you can’t pay off quickly, you should get a personal loan. This is because personal loans offer lower interest rates that most credit cards For example, the interest can vary from 4% to 9% p.a. for personal loans versus 8.88% to 18% p.a. for credit cards. Think about it, if you can’t pay the money back immediately, you’re going to be looking at some very hefty interest charges on your credit card.

2) Personal Loans Can Be Used To Consolidate Debt
A personal loan can be a means for you to get a fresh start on your finances. By consolidating your debt with a personal loan that offers a much lower interest rate than paying multiple loans and credit cards at the same time, you get to simplify your debt and regain control of your financial situation. While you CAN do this with a credit card (0% balance transfer, cash advances and etc.) you might want to consider the following facts first.

3) You Can Only ‘Borrow’ As Much As Your Credit Card LimitMost credit cards have a credit limit which is set for you by the bank based on your credit history and your level of income. So depending on what your credit limit is that’s only as much as you’re going to be able to use to fund whatever it is you want to do with the money. And that’s not to say that personal loans will instantly loan you the money, as the banks will still evaluate your debt service ratio to ensure you can pay them bank before they disburse the loan.

4) Credit Cards Require Much, Much More Discipline
Imagine this: you’ve made your purchase and now you’ve spotted something else that’s caught your fancy. You’ll just add it on to the credit card’s bill and pay it all off later, right? Wrong! Just because you aren’t literally handing over cash for something, doesn’t mean you’re not spending it.  From a psychological perspective, a personal loan makes you feel the pinch more than when you’re out and about freely swiping a credit card. After all that’s cash that you’re taking out of your account, whereas with a credit card, you’re just adding debt by spending money that you don’t have. And make no mistake; if you let your credit card spending get out of hand, you face the risk of falling into major debt.

There you have it! Those are the reasons why a personal loan can be a better financing option than getting a credit card. Why not check out this free personal loan comparison tool by CompareHero.my to find the best personal loan deals in Malaysia today?

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