Is a personal loan or credit card cheaper in terms of total cost and monthly repayment burden? This is a common question for many Malaysians, especially those looking for a solution to short-term financial needs or emergencies.
Both options have their own advantages, but there are also risks that must be understood before making a decision. In this article, we compare the costs, interest rates, monthly repayments, and other important factors so you can choose the option that best fits your financial situation.
Personal Loan vs. Credit Card: What’s the Basic Difference?
A personal loan is a lump-sum cash loan for a specific amount, while a credit card is a revolving line of credit that you can use as long as you have available credit limit.
Personal Loan
A personal loan offers a larger borrowing amount (RM5,000 – RM200,000) with a fixed repayment term ranging from 1 to 10 years. Interest rates can be either fixed or variable. It is suitable for debt consolidation or large expenses, with fixed monthly repayments that make budgeting easier.
A personal loan is ideal if you need a large amount for a specific purpose, want predictable monthly payments, prefer lower profit rates, or wish to consolidate multiple debts into one manageable payment.
Credit Card
A credit card is a revolving line of credit that can be reused, but it comes with high interest rates of up to 18% per year if the outstanding balance is not paid in full. It is suitable for small purchases or emergencies. However, the low minimum payment requirement can lead to growing debt if payments are delayed.
A credit card is useful if you can pay the full balance every month, need quick access to funds for minor emergencies, want to enjoy reward benefits, or require spending flexibility without applying for a new loan. However, avoid making only the minimum payment, as interest charges can cause your debt to accumulate quickly.
Monthly Repayment Burden: Which Is Easier to Manage?
A personal loan offers better repayment stability because the monthly instalments are fixed. For example, a RM20,000 loan at a 7% profit rate over 5 years would be approximately RM396 per month.
In contrast, with a credit card, the minimum payment is usually only 5% of the outstanding balance. While this may seem low, it is the main reason many people fall into high-interest debt traps. Low minimum payments allow the balance to keep growing due to accumulated interest.
So, Which One Is Better? Personal Loan or Credit Card?
In summary, a personal loan is more suitable for large expenses and fixed repayments, while a credit card is more practical for small purchases, emergencies, and situations where you can pay the full balance each month.
However, if you often struggle to fully settle your credit card balance, a personal loan is usually the safer option as it offers lower interest rates and fixed, manageable monthly instalments. Most importantly, having a strong financial plan and budget is essential to avoid falling into debt.
If you want to explore more about personal loans or how to manage your finances better, start by understanding the basics of budgeting, interest rates, and creating a sound financial plan to stay in control of your money.
Choose Wisely to Avoid Debt Traps
Personal loan or credit card? The answer ultimately depends on your situation. If you need a large amount and prefer fixed monthly repayments, a personal loan is the better choice. However, for smaller expenses and if you can pay off the balance in full each month, a credit card offers greater flexibility.
Remember, debt is not the enemy. It is how you manage them that determines whether you enjoy healthy finances or face long-term financial problems. Plan your finances carefully before taking on any commitment.
If you want to find out more about financing options that suit your budget, visit the official OSK Syariah Capital website for more details on Shariah-compliant personal financing with competitive rates.
Frequently Asked Questions (FAQ)
1. Is a personal loan cheaper than a credit card?
Yes. On average, personal loan profit rates are around 4%–8% per year, which is significantly lower compared to credit cards that can reach 15%–18% annually if the balance is not paid in full.
2. Is it safe to use a credit card?
Yes, using a credit card is safe if you are disciplined about paying the full balance every month. However, if you only make the minimum payment, your outstanding balance will grow quickly due to the high interest rates.
3. Is it difficult to get a personal loan approved?
Not necessarily. Approval depends on your credit score, income, and existing financial commitments. Maintaining a clean CCRIS and CTOS record will increase your chances of approval.
