(This article was originally published on the 6th January 2018 and updated on the 3rd June 2020).
There comes a time where we may find ourselves in need of a huge sum of money whether it is to foot the bill of unforeseen business expenses or for emergency purposes like paying the medical fees of a vital surgery. Often, this comes down to two options: Credit Card or Personal Loans (i.e. Koperasi Loan for civil servants).
Before we dive into which option you should use to fund your financial needs, let’s take a closer look at some of the key considerations of using a Credit Card versus undertaking a Personal Loan.
1. Interest Rate
The most important factor to consider when it comes to borrowing money is undoubtedly the interest rate. Interest rates for Credit Cards are known to be higher, with an average range from 15% to 18% per annum or 1.25% to 1.5% monthly whereas Personal Loans averages between 8% to 11% per annum.
Some government employees are entitled to Co-operative Loans (Koperasi Loan) with a lower interest rate. For example, Co-Op Bank Pertama offers Koperasi Loan for civil servants with interest rates as low as 3.90%. Hence, if you are a government employee who is entitled to such rates, the choice is rather obvious.
2. Financing Range
The financing range for Personal Loans is more flexible compared to Credit Cards and it can be from as little as RM3,000 up to a hefty amount of RM250,000. For Credit Cards, according to Bank Negara Malaysia’s guidelines, those earning under RM36,000 per annum will have a credit limit of two times their monthly salary with a maximum of two issuers.
Therefore, if you are earning a monthly salary of RM3,000 your maximum limit will only be RM6,000. This might serve as a limitation towards funding larger financial expenses.
Personal Loan application is subjected to loan application approval and cash disbursement process. Therefore, it may take days or even weeks for you to obtain your loan. Having said that, Koperasi Loans like Yayasan Ihsan Rakyat or Yayasan Dewan Perniagaan Melayu Perlis provide approvals as fast as 2 working days.
Alternatively, it is easier to swipe your Credit Card in this sense. However, such convenience may also result in a higher risk of overspending and accumulating debts (since the Credit Card interest rate is calculated monthly based on outstanding amount) if you pay only the minimum payment of your Credit Card each month.
4. Repayment Methods
Most banks today offer interest free installment plan for selected Credit Cards from 12 up to 36 months for your purchases with selected participating retailers. With such offers, consumers do not need to make full payment on day one, but rather monthly interest-free installments over a period of time.
However, this plan only works if you are a relatively self-disciplined individual. If not, you are better off with the option of taking up a personal loan that gives you a fixed interest rate over an agreed period of time.
5. Rewards & Savings
The perks of using a Credit Card is that it allows you to earn points and redeem rewards from an array of hotels, retailers and restaurants. For instance, a travel credit card provides access to premium airport lounges or points that could be used to claim cheaper or free flights.
Personal Loans (Koperasi Loan), on the other hand, can help you to manage your debts by consolidating everything into one loan. By doing so, you can potentially lower the total payments as the monthly installment interest rates and length are fixed. Furthermore, some financial institutions also reward you with attractive rates if you allow them to perform auto-debit on your bank account for your loan payments.
So, should I get a Credit Card or a Personal Loan?
Generally, Credit Cards are convenient but its limited credit is only suitable for smaller purchases whereas Personal Loans are better for larger purchases and for consumers who prefer a fixed and predictable monthly repayment.
Regardless of whether you choose to use your Credit Card or apply for a Personal Loan, always remember to do your research and only sign up with reputable financial institutions or loan agencies. Shield yourself from scammers by identifying these warning signs that the loan you are getting is a scam.
If you are ever in need of personal financing, don’t hesitate to check out some of our most attractive terms and affordable rates Koperasi and Personal Loan here at Direct Lending. Enjoy reading content like this? Don’t forget to follow us on the blog or our Facebook page for more updated tips on personal finance and also the latest promotion.