Personal Loan vs Credit Card: Which one suits your purpose?

Two people considering to pay off debt with either credit card or personal loans.
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Personal Loan vs Credit Card: Which one suits your purpose?

checking blog post using mobile
Two people considering to pay off debt with either credit card or personal loans.



Credit cards and personal loans are pretty similar in their purpose. They are both types of credit that require a monthly repayment. However, they can differ substantially in their features and fees charged. This is why it is important to consider how you want to use them in order to choose the best one suited to your needs.

Credit cards are great for ad-hoc payments which you can pay off by the end of the month so that you can take advantage of the interest-free days. They also make a good financial tool to have for times where you need cash urgently since you can use cash advance to help you in emergency situations.

In Singapore, credit cards are pretty popular because they offercardholders attractive benefits like cash rebates, discounts with partner merchants and even allow you to earn air miles that you can exchange for free flights. With the stiff competition around, it is not uncommon for banks to offer cash vouchers and sign-up gifts as well.

On the other hand, most borrowers only take up a personal loan when they need it. Due to the fact that you’d need to pay interest once the loan is disbursed, it is usually taken up for use for a specific purpose. A personal loan is disbursed as a lump sum as well, so you can use it for a wide range of purpose, unlike a credit card where you can only use to pay an authorised merchant with the required payment method.


The main differences between a credit card and a personal loan are listed here:

  • Credit cards are revolving lines of credit, whereas a personal loan is a lumpsum payout
  • You’ll usually need to wait at least a day for a personal loan application to be approved, while credit card usage is instant once you have the card with you
  • A minimum tenor is usually required for a personal loan, while there is no minimum monthly spend required for the credit card. Most banks will only disburse a personal loan with at least 6-month tenor, although you might be able to get a shorter loan from a licensed moneylender
  • Credit cards offer interest-free financing for the first 30 days, but personal loans are charged interest starting on the day of approval
  • There is a fixed monthly repayment for a personal loan, but credit cards only require you to pay the minimum payment each month, although you will incur interest on outstanding balances.
  • There is usually a pre-payment penalty for personal loan but there is no such charge for a credit card

When deciding which of these two to use, you’d need to consider the costs,what you are using the money for and how you want to settle the repayments.

·         Paying for large purchases

Depending on the amount and how much money the large purchases cost, using a credit card may be a good idea if you can use the interest-free instalment plan. For instance, if you are moving house and need to buy a number of new home appliances, an interest-free payment plan can help you spread out your purchase on your credit card into monthly repayments. The main advantage here over using a personal loan is that there is no interest charged.

·         Urgent cash

When you are stranded overseas or during times where you need urgent cash to settle a large medical bill, using a credit card’s cash advance could be the solution to your need for short-term financing. However, this may not be the cheapest method because cash advance charges a high interest rate of around 28% p.a, including a one-time fee. This is a few times higher than the rates charged on a personal loan. But because a personal loan application requires a few day’s wait, using a credit card might be the best solution here.

·         Flexibility of use

Let’s say you are generally short on cash, without having something specific you need to pay for – a personal loan is definitely a better choice. Credit card payments are only limited to certain purchases, whereas a personal loan allows you to use the money as you wish.

While both personal loans and credit cards serve as useful credit lines, it is important to understand the cost involved as well as how they can be used in order to choose the best option for you.


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