Personal loan or credit card: What’s the right pick?

When you’re short on cash or need to make a big purchase, the number of options to consider can feel overwhelming. Two of the most common ways to borrow money are personal loans and credit cards.

While both let you borrow money, they work differently. Understanding what each offers can help you choose the best option for your requirements.

What is a personal loan?

A personal loan is a lump sum of money you borrow and repay over time with a fixed interest rate, often facilitated by trusted Singapore money lenders. You usually pay back the loan monthly, and the amount stays the same throughout the loan term.

Advantages:

• You know exactly what you’ll be repaying each month, which helps with budgeting.
• Loans are typically cheaper than credit cards, especially if your credit score is good.
• They’re also great if you need to borrow a larger sum of money, like for home repairs or a big life expense.

Drawbacks:

• Some lenders charge fees to set up the loan or if you pay it off early.
• You’ll usually require a good credit score to get the best rates.
• Once you take out the loan, that’s it – no extra borrowing on the same loan.

What is a credit card?

A credit card lets you borrow up to a limit, and you can pay it back as you go. You can repay the full amount or just a portion each month, but if you leave a balance, you’ll get charged interest.

Benefits:

• You have the flexibility to borrow as much or as little as you need, whenever you require.
• Many cards offer rewards, like cashback or points for travel.
• If you can’t repay the full balance, you can pay a smaller amount each month.

Drawbacks:

• If you don’t pay off your balance in full, interest can quickly add up due to compound interest.
• It’s easy to rack up debt if you’re not careful with spending.
• Interest rates can go up, so your payments might increase without warning.

So, what’s the right choice?

It all depends on what you need the money for and the repayment method that will work best for you. If you require a large sum and want a clear, fixed repayment schedule, it might be more suitable to apply for a personal loan. The lower interest rates can save you money if you have good credit.

On the other hand, a credit card could be more beneficial if you want flexibility and are confident you can repay smaller amounts.

At the end of the day, it’s about finding what fits your situation. Take the time to think about how much you need to borrow, how quickly you can pay it off and what you’re comfortable with in terms of interest and repayments.