What are the differences between a credit card and a personal loan?
| Aspect | Credit Cards | Personal Loans |
|---|---|---|
| Convenience | - Substitute for cash - Usable overseas - Convenient for online transactions - Auto-debit for monthly bills - Supplementary cards available |
- Higher loan amounts - Quick availability - Minimal documentation - No collateral or guarantor is required - Lump sum disbursement |
| Financially Beneficial | - Builds credit score - Opportunity for monthly instalments - Financial backup - Lower interest rates or interest - Free periods - Access to purchases when cash is unavailable |
- Increases creditworthiness when paid on time - Access to funds for various purposes - Debt consolidation option - Fixed interest rates and repayment terms - Possible lower interest rates with auto-debit - Option to top up the loan in the future |
| Rewards and Savings | - Points, rewards, and discounts on purchases - Cashback options - Special privileges for frequent flyers |
- Debt consolidation may lower overall payments - Fixed interest rates and loan terms - Possibly lower interest rates with auto-debit - Option for top-up loans |
| Safety | - 24/7 customer service - Zero liability for fraudulent transactions - Security measures for online purchases |
- Direct wire transfer to the bank account - Cashless transactions minimise the risk of loss |
| Cons | - High interest rates on overdue bills - High fees - Risk of overspending - Vulnerability to fraud |
- Higher interest rates compared to secured loans - Lock-in periods and penalties for prepayment - Potential for unnecessary excess payments |
Can you tell the difference now?
Credit cards are often more suitable for smaller amounts and everyday use. Personal loans offer relatively higher amounts and are a fixed-term structured product.
In conclusion, credit cards and personal loans have different uses and various pros and cons. To decide on what’s best for you, you should think about the goal you want to achieve by getting a credit card or personal loan.
*The above article is intended for informational purposes only. Loanstreet accepts no responsibility for loss that may arise from reliance on information contained in the articles.
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