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Personal Loan Vs. Credit Card: Which is Right for You?

Personal Loan Vs. Credit Card
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Personal loans and credit cards are common financial products that offer a way to borrow money. Both financial products are offered at a specified interest rate, monthly payments, and late fees.

But beyond their similar attributes, personal loans and credit cards have a key difference- they are different types of credit. 

A credit card is a revolving credit, which means you can borrow only the amount you need. Your payments are based on your outstanding balance on a given month. Personal loans, on the other hand, are installment loans where you will receive a lump sum and repay it based on a repayment schedule.


  Personal Loan Credit Card
Type of Credit Installment loan Revolving credit
Secure or Unsecured Can be a secured or unsecured loan Can be a secured or unsecured loan
Repayment Terms Have a fixed loan tenure which is the duration of the loan Pay the minimum amount or full outstanding balance by the monthly due date

Avoid paying interest charges if you pay the balance in full every month

Interest Rate Can charge lower interest rates Typically charges higher interest rates

Can come with a 0% introductory interest rate on purchases and/or balance transfers

Fees Typically includes a processing fee and may have other fees and charges, such as repayment fees and late fees Typically charges an annual fee. Some card providers offer an annual fee waiver for the first year.
Rewards  -na- Can offer rewards and perks depending on the credit card provider


How Credit Affects Your Score

A credit report is a record of your credit history from different providers. This is where you’ll find your credit score.

Credit scores are based on an individual’s past credit history, including loan defaults, inquiries, and outstanding balances. For instance, the more debt you take on, the lower your score. Plus, taking on more debt within a short period, can also lower your credit score.

Additionally, the length of your credit history will also affect your credit score. Lenders prefer individuals with a longer credit history than those with a short or no credit history. Your credit score is based on these factors and it will influence your chances of getting approved for a loan or card. Know more on how to improve your credit score here.


When Is Personal Loan A Good Idea?

Personal loans are best for when you are planning to make a large, one-off expense. Since you will receive the funds in a lump sum, you can use it for just about any purpose, such as:

  • Debt consolidation: If you’ve acquired high-interest credit card debt, you can pay off your debt using the lump sum from a personal loan. Personal loans have a lower rate than credit cards which will make your repayments more manageable.
  • Emergency medical bills: Although you can use your insurance for medical expenses, you may still need extra cash.
  • Home improvement projects: When you need financing for a home repair or minor renovation project, a personal loan is a good option. However, make sure to borrow only what you need to avoid incurring more debt.
  • Finance a wedding: A wedding is a huge expense. Instead of using your credit card, you can take out a personal loan with a lower interest rate. This may help you save on interest in the long run.

Like most financial products, a personal loan charges more than just interest. Borrowers may incur a processing fee as well as penalty fees for paying off your loan early. Or you may incur late fees if you fail to pay the monthly repayment.


  • Best for making large, one-off purchases
  • Can be used to consolidate debt
  • Offers a lower interest rate
  • Fixed monthly payments throughout the loan tenure
  • Fixed loan tenure
  • Easier to set a budget since you know how much you’ll be paying every month
  • Cash is disbursed in one lump sum


  • Aside from interest, you’ll also incur processing fees and other charges
  • When you take out a secured loan, your property will be used as collateral and can be seized if you default on the loan
  • Meant to be taken out infrequently
  • Not advisable for smaller purchases or if you need financing on a regular basis
  • Don’t offer rewards or perks like credit cards


When Is A Credit Card A Good Idea?

Credit Cards are best for smaller purchases and more frequent expenses. For instance, you can use credit cards for paying off your groceries or your utility bills before it’s due.

Credit cards are a type of revolving credit where you have access to a specific amount but you don’t receive it in a lump sum. Instead, you can borrow money at any time up to the credit limit. You will only pay interest on the funds you’ve used. However, if you pay off the full outstanding balance before the monthly due date, you won’t be paying interest.

 Credit Cards are good for:

  • Small, everyday purchases: You can use it for groceries, dinners, or petrol. As long as you pay your monthly bills on time, it will help raise your credit score without incurring more debt.
  • Travels and foreign currency purchases: There are air miles cards that help you earn miles which you can redeem for an airline ticket. These credit cards will also offer higher rewards for online and foreign currency transactions.
  • Cashback opportunities: There are credit cards that offer lucrative cashback for every purchase. However, these cards usually have a minimum spend requirement. Click here to find out the best cashback credit cards in Singapore. 
  • Debt consolidation: Aside from personal loans, you can also consolidate your high-interest debt on one credit card. There are cards offering a 0% introductory rate for a fixed period. Take this opportunity to pay off your outstanding balance in full before the promotional rate ends.


  • Interest is charged when funds are used
  • Some credit card providers offer 0% introductory interest rates during a fixed period
  • Earn cashback, point rewards, and travel miles
  • If you have good credit standing, you can enjoy a credit limit increase
  • Can be used to bridge the gap of unexpected, small expenses


  • Interest rates are typically higher compared to personal loans
  • Interest and fees can quickly add up if you only pay the minimum payment every month.
  • May find yourself in deeper debt if you use your credit card faster than you pay it off
  • You have to pay annual fees, foreign currency exchange fees, and other fees and charges


Alternatives To Personal Loans And Credit Cards

Hesitant to take out a personal loan but also unsure whether a credit card is right for you? There are other options you can consider depending on your needs:

  • Home Equity Loan:
    With this type of loan, you can borrow a lump sum of money against the equity you have in your property. Home equity loans typically have lower rates. The downside? If you fail to make repayments, you could lose your home.
  • Personal Line of Credit:
    With this option, you get the best of both worlds. This means you can draw from your credit line as you need, as long as you do not exceed the credit limit. However, unlike personal loans, the interest is charged only when you draw money from them.
    Think of it as like having “standby cash”. The interest rates are much higher than personal loans but lower than credit cards.
  • Home Equity Line or HELOC:
    This alternative also uses your home’s equity. However, it works like a credit card. You’ll be given access to a line of credit and you can take out the amount you need when you need it. However, you’ll have to follow a repayment period and the interest is charged only on the amount you used. This is best for home improvement projects or expenses.
  • Cash Advance:
    Credit card providers also offer cash advances where you can withdraw a lump sum amount against your credit card limit. However, the interest rate is higher than the interest charged for purchases. Plus, some credit card providers also charge an additional cash advance fee.
  • Payday Loans:
    This is another option if you can’t qualify for personal loans or credit cards. With this loan, lenders usually don’t check borrowers’ credit scores so it’s easier to qualify for. You only need to provide proof that you’ll be receiving your salary soon.

However, payday loans have high interest rates and shorter tenure. As the name suggests, you’ll need to pay the loan within a month or on your next payday.


Holding credit card

Frequently Asked Questions

1. Can You Use a Personal Loan To Pay Off Your Debt?

Do you have outstanding credit card debt with a high interest rate? You can take out a personal loan for debt consolidation. However, make sure that the personal loan has a much lower interest rate than the one you currently have.

After the cash is disbursed, use it to pay off your outstanding credit card bills. Make sure that you commit to your fixed monthly payments. Of course, keep your credit card expenses to a minimum. Lastly, consider canceling your non-essential credit cards.


2. What If I Don’t Qualify For A Personal Loan Or Credit Card?

There could be different reasons as to why banks reject personal loan or credit card applications. For instance, most banks are hesitant to approve borrowers with a bad credit score. Fortunately, there are other options available if you don’t qualify for either a personal loan or credit card.

You may turn to a licensed moneylender in Singapore. These licensed lenders offer loans even to those with poor credit. You can find the complete list of licensed moneylenders on the Ministry of Law website, so make sure to borrow only from them.

Licensed lenders are required by law to explain the terms and conditions of a loan to borrowers in a language they understand. Plus, they can only charge interest rates between 1-4%.


3. What Is An Effective Interest Rate?

Banks and financial institutions in Singapore are required to state the effective interest or EIR. This interest rate takes into account the additional fees, such as a processing fee. Additionally, it also considers the repayment schedule and other loan details. That said, EIR shows you the true cost of the personal loan.

When comparing personal loan packages, use the EIR as it offers a more accurate picture of how much interest you’ll be paying.


4. What Type Of Credit Cards Are Available In Singapore?

Unlike personal loans, you can enjoy rewards and perks when you use a credit card. But which credit card is best for you?

It depends on your lifestyle and spending habits. Below are the different types of credit cards available in Singapore:

  • Air Miles Credit Cards: This type of credit card rewards you with air miles for every dollar you spend. Typically, air miles cards do not have minimum spending requirements or caps on miles earned. This type of credit card is best for frequent travelers or those who want to redeem free air tickets when they travel.
  • Cashback Credit Cards: With this type of credit card, you will be rewarded with a small percentage of the amount you’ve spent on the card. The cashback amount accumulates until you decide to redeem it. You can then use the amount to offset your next purchase or your credit card bill. Most cash back cards have a minimum spend requirement. This means you won’t enjoy the reward if you don’t meet the minimum spend.
  • Rewards Credit Cards: With every purchase, you will earn reward points with this type of credit card. You can then use the earned points to redeem products or vouchers from the provider’s catalog or partner companies. Rewards vary between banks, so make sure to know more about the rewards program before applying.


5. Can Foreigners Get A Personal Loan Or Credit Card in Singapore?

Banks and licensed moneylenders in Singapore offer personal loans to foreigners living in Singapore. You only need to prove that you’re currently employed. Plus, you’ll need to provide a copy of your Employment Pass with 1-year validity and proof of residence. You may also need to meet the minimum income requirement between S$40,000 and S$60,000.

This is the same with a credit card application. You need to meet the minimum annual income requirement – which is higher than locals, and submit all the necessary documents.



Key Takeaways:

  • Both personal loans and credit cards give you financial assistance when you need to pay off small or big expenses.
  • Both financial products are offered at a specified interest rate, monthly payments, and late fees.
  • The biggest difference is that they involve different types of credit.
  • A credit card is a revolving credit, which means you can borrow only the amount you need and your payments are based on your balance on a given month.
  • Personal loans are installment loans where you will receive a lump sum and repay it based on a repayment schedule.

Not all credit is made equal. Personal loans and credit cards have different terms and conditions. Personal loans have relatively lower interest rates than credit cards. However, it must be repaid over a set period. Credit cards, on the other hand, offer constant access to funds and you’ll only pay interest on outstanding balances that you haven’t paid off on the due date.

Don’t qualify for a personal loan or credit card? You may want to turn to a licensed moneylender. Loan Advisor is a one-stop loan comparison portal that will provide you with the most up-to-date information about the top licensed moneylenders in Singapore. Request up to three loan quotes today to find the best plans!

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