Both Personal loans and credit card loans are types of credit or services provided by banks to lend you money when times get tough. But the answer on which line of credit you should take depends on the amount of money you want to borrow; the time it takes you plan to pay the debt and your financial status or financial capacity as well.
Now let’s learn the difference between personal loans and credit card loan and some of its pros and cons.
What is a Personal Loan?
A personal loan is usually made for large amounts of money to be paid for a longer period of time, usually several years. Personal loans have a reduced/fixed interest rates plus the amount which you will have to pay full monthly. Say you want to borrow AED 20,000 and plan to pay it for more than 18 months; in this case, a personal loan may your best option.
- Ideal for big purchases such as buying a property, starting a business or travel expenses
- You will know beforehand the exact monthly payment and the exact length of time you should pay your debt
- You will pay a fixed amount monthly for the agreed term
- Have lower interest rates than credit cards
- Repayment schedule have an end date
- Carrying the debt for more than 1 or 2 years. Minimum loan term is one year
- Application takes lengthy processing and more paperwork
- It can be inflexible. May have charges such as origination fee which is 1% to 5% of the loan amount
- No partly payments. You need to pay the fixed amount in full each month.
How about a Credit Card Loan or Loan-on-Card/ LOA
Although credit cards typically have high interest rates, credit cards in UAE have lower interest rates than the typical ones around the world. Loan on card is a lot quicker to obtain with fewer documents required compared to applying a personal loans. Obtaining a credit card loan is quick and hassle-free as long as you have good credit history and since you’ve already been pre-approved by the bank beforehand. Loan on credit card is for smaller purchases and is suitable for those wanting quick cash for immediate spending and can pay back the debt for a short period of time
- Quick and easy processing with less paperwork
- Ideal choice if you need a constant flow of cash
- Suitable for immediate spending, short-term financing
- It can come with cash or travel rewards which is typically 1 percent to 2 percent of the total amount spent/borrowed
- There will be interest-free days
- Loan on card interest rates are much higher than personal loans’ interest rates
- You can only take limited amount of money compared to personal loans
- Will need only minimum repayment each statement which means your debt can roll on and on, costing you much more in the long run.
- If you fail to pay your minimum repayment monthly, you will be charged with penalties and your balance would have finance charges or interest.
Now that you have the basic knowledge about personal loans and credit card loans, it’s all up to you which type of finance you should avail. If you want to borrow a lump sum of money and you need 2 to 5 years to pay it off, then personal loan is the best option. On the other hand, if you need a smaller amount and you can pay the full monthly installment in 3-6 months, then you should go for credit card.
Also consider reviewing Logbook Loans