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Credit Card VS Personal loan


In life there are unexpected moments where we are in sudden need of a large sum of money. It can happen that you find yourself having sufficient to cover the cost of that moment or not. In moments of panic an emergency fund is the solution to the problem, but if that amount is not even enough then what other options are available? We explore together about the possibilities and differences of taking out a credit card or a personal loan so that you understand what suits you.

What is a Personal Loan?

A personal loan is an unsecured credit that is provided by certain financial institutions that are based on criteria such as employment history, income level, credit history and repayment capacity. When taking out a personal loan, one is able to make in most instances a big purchase of an item or service since personal loans are in most cases leaning towards a significant amount of money.


1. Low interest rates and higher borrowing limits.

A personal loan is, in most cases, accompanied with low interest rates which makes it much easier to repay the loan. As an example, in September 2021, studies showed that the average interest rates for loans totaled 10.46 percent and credit card rate averaged 16.27 percent (Lusk, 2021). Moreover, the borrowing limit, when compared to credit card, is much higher which allows you to borrow ranging from RM3000 up until even RM250.000.

 2. Free of collateral requirement

When taking out a personal loan, unsecured personal loans do not require one to have collateral. This makes it much easier to apply for a personal loan rather than having complications such as having the fear of losing a car or a fixed asset.

 3. A personal loan is simply easy to manage!

Having a single personal loan gives you a very clear overview, as you only have one fixed -rate monthly repayment. This makes it very easy to manage which will help you to get a clearer financial overview structure.


1. Penalties and fees can be high

When one finds themselves in a difficult financial situation where one is unable to repay the debt on time, the penalties for paying late can amount to high costs. It is important to review before applying for a loan. In some cases, the institute charges high origin fees. As an example, certain personal loans are accompanied with origination fees of 1 to 6 percent of the total loan amount. This can make the personal more expensive than one originally expected to have (Lusk, 2021).

It is therefore important to review all the fees and possible penalties before taking out a personal loan.

2. It may affect credit health

Applying for a loan can imply that you might have a hard inquiry which can affect your creditworthiness and possibly stay on your credit report for two years. This means that the future actions taken with the personal loan taken, such as late repayment can affect your creditworthiness (The Pros and Cons of Personal Loans, 2021).

What is a credit card loan?

A credit card is a card issued by a bank or financial institute that allows you to purchase goods or services with a fund that has to be repaid at the end of the month. It is a service of “buy first”, “pay later” attitude with a usual repayment period or 20 days after the first bill has been issued.


1. Accessible and easy to use

One of the main advantages of using credit cards is that it is accessible, giving you a quick source of emergency funds when needed.

2. Build a healthy credit score

When owning a credit card, one can work on creating a healthy credit score which can be done by working towards a good payment record leading to high credit score ratings. This further can help you when applying for a “serious” loan such as a mortgage loan, allowing you to get lower interest rates.

3. Credit card bring safety

It can happen that someone uses without authorization and spends your money without you knowing. When finding out, it might be too late and the funds from your account are gone. This can trigger problems for you as the fixed bills still have to be paid. In contrast, when having a credit card, once the money is missing you still hold on to your funds in your account. Even if it is not your fault, you can file a claim to your credit card company and in most cases, you do not pay for these transactions (FONTINELLE, 2021).

Personal Loan Differences Credit Card
The application and approval process can range between one to several working days. Convenience Credit card can be used at your convenience at any moment.
In general, the minimum loan is RM3000 up until a maximum of RM250.000 (if eligible). Credit Limit Two times the monthly income if you earn under RM3600. Otherwise, you can own multiple credit cards which makes it subject to the bank.
Ranges between 3.88% – 9% respectively. Interest Rate Ranges between 8% – 15% p.a
Safe on interest by using Autopay. Rewards Receive Cash rebates, discounts and Air Miles.
Fixed rates on interest and repayment dates. Repayment Financial institutes can offer interest-free instalment plans ranging from 12 to 36 months.

Know your rates

Fixed interest rates vs. Flat interest rates

When taking a loan, one must know firsthand what the total costs are of taking that loan and if your financial situation fits the loan you would like to take. Therefore, this article will explain the main difference between fixed and flat interest rates.


Credit cards contain fixed interest rates

  1. Interest rates are charged on a day-to-day basis
  2. The interest is added to the outstanding balance, this continues when the repayment has not been completed.

Personal loans contain flat interest rates


  1. Personal loans contain flat rates that are calculated on the initial amount borrowed.
  2. This implies that there is a fixed fee being paid in installments based on the duration of the loan taken.

Calculation sample!

When weighing in, you can use this simple calculation sample to figure out how much you can save.

James wants to take out a loan to buy his dream car. James cannot choose between using a credit card or a personal loan to fund his payment, therefore James makes a calculation based on a loan with a payback period of two years. In this case James can afford to pay   RM550 per month.

  Credit card Personal loan
Credit amount RM10.000 RM10.000
Interest rate 12% 5%
Tenure 24 Months 24 Months
  Personal loan Credit Card
Minimum monthly repayment RM550 RM437.5
Total payment over entire tenure RM550 x 24 months = RM13200. RM 437.5 x 24 months= RM10500.
Total interest (total payment-principal) RM3200 RM 500
Total RM saved RM1700  

Note: This is a simple example to calculate the total savings. Please know that there are other factors that might change the interest rate.

The calculation executed above shows that taking out a personal loan is a better choice for James in this situation. It can be seen that taking a personal loan compared to taking a credit card loan, will save you monthly (RM550-RM 437.5) RM112.5 ! It is important when taking a loan to look at the criteria and especially at the interest rate and minimum monthly repayment amount.