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Which One Should I Get: Credit Card vs Personal Loan?


When you don’t have enough money in your bank account to do the things you want or need to do, credit cards and personal loans can truly come in handy.

But do you know when it makes more sense to use your credit card and when to consider applying for personal loan? Here’s a list of pros and cons for using credit cards vs personal loans, as well as a quick guide to help you understand their uses:


Credit Card Pros

  • Opportunity to save. With credit card rewards like cashbacks, special discounts and zero-instalment plans, cardholders can stretch their budgets and save more.  For instance, with the HSBC Amanah MPower Platinum-i, you can earn up to RM600 cashback per year.

  • Immediate access to credit. Even though it is like a mini-loan, you won’t have to make an application for credit and wait for approval each time you swipe with your card.  In fact, it’s so convenient; it works more like cash than a loan.

  • Purchase protections. When you buy online or when you make expensive retail purchases, a credit card is often a smarter method of payment. This is because most come with fraud protections or other insurances to cover your purchases.

 Credit Card Cons

  • Credit limit. When spending with a credit card, you do have to mind the credit limit.  For those earning RM36,000 or less per year, the limit is set to two times your monthly salary for each card, of which you are only allowed two. So for instance, if you earn RM2,500 per month, you are only allowed a credit of RM5,000 per card or a maximum credit of RM10,000 for two cards.

  • Chances of debt and overspending. Since you don’t have to pay off the full amount each month and only need to make the minimum payment, your debt can grow if you are not careful. Moreover, interests will be tacked on to outstanding balances each month, increasing the amount owed which will continue to grow the longer you wait to fully settle your bill.

  • Potentially higher interest. When compared to personal loans, spending with credit cards often incur a higher interest rate with the average ranging from 15% to 18% per annum.  A personal loan on the other hand averages 8% to 11%, which during promo periods can be even lower. For instance, Alliance CashFirst Personal Loan is offering a flat rate of 5.99% per annum if you borrow for up to 2 years.

When should you use your credit card?

It’s a good idea to use your credit card for purchases that come with special credit card-only benefits. This can include retail purchases that offer good discounts, freebies and extra reward points when you pay with a credit card. 

If your card comes with travel insurance, use it to book travel-related expenses like flights, hotel bookings and car rentals. Depending on the coverage offered by your credit card, you may be able to make claims if you miss your flights or need medical assistance while travelling.

Another time you might want to swipe for payment is if a zero-instalment plan is offered for credit card payments. This way you can use your credit card to save on interests while making a quality purchase with affordable monthly instalments.

Personal Loan Pros

  • Borrow a larger sum. The financing range for personal loans is rather flexible, from as little as RM5,000 right up to RM250,000, which is helpful when you need to cover heavy expenses. For instance, Citibank Personal Loan offers financing of up to 8 times your gross monthly salary.

  • Lower interests. You’ll typically pay less in interest with a personal loan, especially if you are borrowing a larger sum. You should be able to save even more interest overall if you repay your loan within a shorter time frame.

  • Take advantage of cash payment discounts. If your loan is approved and successfully disbursed, you’ll have cash in hand. Depending on what you plan to buy with your loaned funds, you could negotiate better deals for making on-the-spot, full cash payments.


Personal Loan Cons

  • Subject to loan application approval. You will have to go through the process of applying and waiting for approval, which can take up to three days or more depending on your credit profile. Still, do note, some personal loans can offer immediate approval like the RHB Easy-Pinjam Ekspres that promises an answer within 10 minutes!

  • May have to wait for cash disbursement. If your loan is approved, you’ll still have to wait for cash to be released to your bank account before you can spend it. While ‘fast approval, fast disbursement’ loans are available, credit cards are still more efficient in this sense.

  • Fixed instalments each month. This can be either a pro or a con, depending on how you earn your income. If you are a fixed income earner, a monthly instalment may not be an issue. However, if you earn on commission, it might be difficult to come up with a fixed amount each month.  The difference with a credit card is that you can drag out the payments to fit your affordability.



So, when should you consider a personal loan?

Personal loans are best for heavier expenses like paying for your wedding reception, major travel, renovations and refurbishments, starting a business, your education and the like.

When compared to the limits of a credit card, even maxed out over multiple cards, it will not be able to match the level of funds available from a personal loan. Thus, you may consider a personal loan when you plan to pay for heavy expenses that exceed your credit limit.

This means that you don’t have to settle for either a personal loan or a credit card; you can use BOTH to better manage your money needs and get access to cash as affordably as possible.

You can have a credit card for smaller purchases, which if you pay off within the grace period, means that you won’t incur interests. You can also take out a personal loan to cover the stuff that your credit card can’t!

Think long and hard before you make a decision, as it will impact your financial health.







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