Personal Loan vs Credit Cards


Many of you will be wondering if you should get a personal loan to solve your debts. Here are a few pointers of personal loan versus credit cards. At a first glance, many people think that personal loan interest is much lower than credit card interest. This is actually a false conception as personal loan interest is flat rate and credit card interest is based on balance owed. Read more about flat rate. The effective rate of personal loan may be near double than it’s value. This is as high as credit card interest or maybe slightly higher.


When should I get a Personal Loan

  • Fixed interest rates
  • Fixed repayment

The range of financing offered by personal is quite high ranging from RM 5,000 to RM 200,000 depending on your income which is quite high compared to credit card limit. A general rule of thumb is that a bank will offer you 5 times your gross salary but this also may vary from bank to bank.

Personal loan offers you periodic installment for amount loan.You may want to consider personal loan if you have access to constant amount of cash (for example of salary) which you can allocate some for repayment. There are usually lock in period where you may need to pay extra if you want to settle your personal loan.

If you have a bad spending habit, it would be wise to consolidate all your credit card debts into personal with a fixed repayment and cancel the access of credit cards.


When should I get a Credit cards

Credit card offers lower limit of financing compared to personal loan. This will also depends on the limit of your credit cards which is typically 2 times your monthly salary and also the amount of cards you have.

As Credit Cards interest is reducing balance based. This would be great for people with good cash flow and needs money in short amount of time. You can settle all your debts with credit cards anytime if you have the money. Credit card has much more repayment flexibility compared to personal loan. You can use your credits directly without the hassle of approval. Some credit cards offer overdraft or limit increase in short amount of time.

The interest can and may snow ball you into higher debts with it’s great flexibility. You may need to reconsider using Credit cards if you have discipline issue with your spending habit.