Personal Loans vs. Credit Cards: What’s the Difference?
There is no doubt that credit plays an important part in the economy. Without it, capitalism would remain stagnant. Apart from that, credit helps lighten the financial burden of the lender.
However, this does not mean that all credits are of the same type. As there are a number of financial institutions in the UAE, so are the credit offers. The terms and conditions of the credit differ for each financial institution too.
There are several factors to be considered before opting for a credit. One of the considerations involve whether to take a credit card in UAE or a personal loan in UAE. Both personal loan in UAE and the credit card in UAE share a lot of similarities. These similarities can involve the interest rates, funding, Easy monthly installments, etc.
However, personal loan and credit card loans have lots of differences too. Here, we are going to discuss the differences between the personal loan and the credit card loans.
Comprehending the Terms of Credit
Before we move on to the differences between the two credits, we should understand the most important similarity between the two. That is the Credit Score. It would not be easy to obtain any kind of loan in the UAE without a credit score.
Credit is one of the most important factor in determining the approval of the personal loan in UAE or Credit card in UAE.
As we know, Credit score is calculated based on the history of payments of the borrower. Every default, late payments, early payments, etc. is calculated in the making of a credit score. The payment history can make or mar the credit score of an individual.
The credit score helps the lender determine the interest rate and the finance amount. The personal loan in UAE and Credit cards in UAE are counted as unsecured loans. Hence, credit score ends up helping the financial institutions a lot on terms of credit.
The personal finance category offers a varied option which affects the terms of the credit. Specifically, long-term balance is one of the most noticeable and important difference. Credit card offers long-term balance unlike personal loan in UAE. However, personal loan offers a lump sum amount in a short amount of time. The customers can pay off the personal loan in easy monthly installments. The personal loan in UAE also offers lower interest rates.
The borrower can use the personal loan for any reason. They can use it to pay off the consolidation of the debt, fund a marriage ceremony, home renovation, etc.
As the personal loan in UAE is unsecured, the applicant doesn’t need a collateral to qualify for the loan. The applicant can also apply for the personal loan through in-person or online application.
Secured loans can also be termed under personal loan. For example: car loan, home loan, etc. However, these loans require a guarantee and are less of a risk. Therefore, it is easy to be approved for these types of loan.
Some of the advantages of personal loans are
- Large amount of finance
- Low interest rate
And the disadvantage of the personal loan is the fact that it is only available for a specified amount of time.
Credit card is a part of the revolving credit. The revolving credit offers lifetime finance as long as the card holder maintains a good standing of his/her account. The credit limit of the revolving credit can increase overtime. However, the interest rates of the revolving credit or credit card is typically high.
Note that credit cards don’t offer the finance amount in full. Credit cards have certain limitations in case of finance. However, the borrower or the card holder can take the amount whenever they need.
Cardholder also won’t have to pay any interest rate if he has not used the card, as interest rates are charged on used finances only.
Credit cards comes with lots of rewards and offers. These rewards include cashback, air miles, discounts, etc. However, the rewards can depend on the type of credit card you hold. Also, the annual fees can make slight differences too. Cards with annual fees generally comes with better rewards and offers in the UAE. But that is not always true for all credit cards. As UAE also offers free credit cards, some free credit cards come with the best rewards in the UAE.
Credit cards can be secured or unsecured, depending on the card holder’s choice. If the credit card is secured, the card holder every purchase is insured for a specific period of time.
As it is, every credit card comes with its own set of terms and conditions. So, it is important for the card holders and the applicants to always read the fine print.
The credit is card is good for a small amount of loan as the burden of the interest rate can be quite heavy. No matter how tempting the offer of rewards and cashbacks are, always make sure to check the interest rate.
Some of the advantages of the credit cards involve:
- Interest rate charged only on used funds
- Easy payment with credit cards
- Grace periods, rewards etc.
However, the major disadvantage of the credit card is:
- High interest rate
- Limitations on cash advancements
Over to You
If you have no interest in a personal loan in UAE or credit card in UAE, there are other options for credit too. These credits are mortgage loan, Business loans, car loans, etc.
There is no doubt that personal loan and credit cards come with their own set of benefits and similarities. However, both have their disadvantages and differences too.