Personal Loan vs Credit Card Loan: Which is the Right Choice for You?
For loans without submitting any collateral or guarantee, personal loan and the credit card loan offers the best option. But do you know which is the better option between the two? We will discuss it here today.
As it is, you never know when you will need urgent money. After all, unplanned expenses can hit us anytime. Not everyone is financially stable enough to deal with unplanned expenses. In cases like that, we can turn to a personal loan in UAE and credit card in UAE for help. However, you need to remember that in both cases, you have to repay the loan amount with interest.
Although financial experts often suggest saving funds for emergency, not many people can afford it. That is when the credit card and the personal loan come as a great relief. Choosing between personal finance and credit card is hard as both has its pros and cons. Also, both have their dedicated supporters too.
Let us Start with a Credit Card
Credit card is generally used for daily expenses as card members have easy access to plastic money. However, this also makes the card members much more vulnerable to overspending. Overspending can lead to using of funds that the card members don’t have. This can, in turn, lead them to debt.
Also, card members can choose the bill amount to repay as long as it is not below the minimum amount. As the card members pay just the minimum bill, their outstanding bill will automatically be turned into debt. This outstanding amount will not only be charged a late fee, but it can also result in the increase of the interest rates.
Increase in debt and interest rates will automatically add to your financial burden. In this case, most people turn to balance transfer. Balance transfer gives the card members a chance to pay off their debt with little or no interest rates. However, if you are still not able to pay off your debt, a personal loan would be the best solution for you.
Credit cards are a good option when you need to borrow a smaller amount. Some credit card offers interest-free periods in the UAE. The grace period usually lasts for 55 days. You can easily pay off the loan amount within those interest-free periods without any interest rates. However, when it comes to huge amounts of debts, a personal loan can offer much better term and conditions. For smaller amounts, credit cards are definitely a better choice.
It’s no secret that credit cards require no documentation for loans. You can use it anywhere anytime, unlike personal loans. With personal loans, you will have to pay the additional charges along with the loan amount. A personal loan has processing fees, early settlement fees, etc. attached to it, unlike credit cards.
Credit cards also reward its card members with cashbacks, air miles, discounts, etc. But that cannot be the only reason for you to choose a credit card for a loan. As we already know, credit card increases its interest rates with increasing debt and time. If you feel you cannot pay back the loan on time, a credit card is not a feasible choice for you. Personal loans, however, give its customers time to pay back the money. Also, you can pay back the money in decided EMI option without worrying about any outstanding balance.
Personal Loan for a High Amount
If you are, ever, in need of high finance amount, a personal loan is the go-to destination. You can also go to a personal loan for the consolidation of the debt. You can repay the personal loan in easy monthly installments. The monthly repayment amount with the interest rate is already decided beforehand. Therefore, you don’t need to worry about increasing interest rates or repayment amount. Every month you will have to pay the set amount. The personal loan interest rates are much lower compared to the credit card interest rates.
The personal loan can be a better option because it has fixed interest rates and repayment tenure. The repayment tenure is mostly up to 48 months. Also, there is no option of minimum monthly payments with a personal loan as with credit cards. The minimum monthly payment does more harm than good.
It would be wrong to assume that everyone can access personal loan easily. That is not how it works. There are some eligibility requirements that you will have to qualify. On top of that, your debt to burden ratio should not be higher than the limit.
Make sure to have a payment plan that works for you. Even though the personal loan offers lower interest rates, some customers are still unable to repay due to unplanned payment.
Personal loan offers some benefits to its customers too. Some of the personal loan benefits include-
- Longer repayment tenure
- The fixed monthly repayment amount
- Free credit cards
- Account without any minimum deposit requirements
In a Nutshell
Both credit card and personal loan have their own pros and cons. The target categories differ for the two too. Basically, customers with low finance amount should opt for credit card and higher loan amount requirement should go for the personal loan.
There is a difference between the personal loan benefits and credit card benefits too.