Should you get a personal loan or a credit card?


Both will get you to where you’re going, but in very different ways. At the end of the day, you have to decide which solution is the best fit for you.

Quick and easy credit

Credit cards are ideal for making retail purchases without having to carry cash. Your account will have a credit limit, but you do not have to use all of it, and you only pay interest on the credit limit amount you’ve used. If you pay off the full balance early enough, you won’t pay interest at all. That’s in contrast to a personal loan, which credits you upfront with the full amount, then adds interest every month.

The credit limit you’re granted on a credit card will be specific to your circumstances. If you pay off everything you charge to the card faithfully every month, a decent credit limit can add to your peace of mind. Whatever the emergency, you will be able to cover unexpected expenses up to your credit limit, whenever they occur.

Be aware, though, that responsible credit card ownership requires the discipline not to fall into a ‘shop and be damned’ mindset, but rather to use your credit card only when it makes sense. Of course, this is not a risk confined to credit cards – it applies equally when you receive the full amount of your personal loan in your account. It is just as easy to fritter away a personal loan on impulse buys, as it is to rack up unnecessary credit card bills. 

Both require focus and willpower, if they are going to help you achieve the goals you intended when you applied for them. But discipline when shopping with a credit card is vital if you want to be able to pay off the full amount owed every month – which is the secret to avoiding interest. If you only pay the instalment on your statement – the ‘minimum payment due’ – you start adding interest to the remaining balance. In other words, while your loan interest rate is fixed, whether or not you pay interest on your credit card at all is something you can control with your spending behaviour.

It’s not an either-or choice, of course. These are 2 different forms of credit with different uses

When used correctly, a credit card can be a useful tool that adds value, not stress, to your life. Apart from taking the worry out of sudden emergency expenses, credit cards also make online shopping easier and safer. Another handy use of your credit card is for monthly groceries and other household expenses – for amounts that you know you can settle in full before interest is charged. Depending on when you use your card in your monthly statement cycle, you could get up to 55 days interest-free, along with the convenience of cash-free shopping.

Credit with a plan

Think of a personal loan as a credit facility for larger, planned expenses, rather than day-to-day convenience. Which isn’t to say you might not need a personal loan at short notice to cover unexpected costs, especially if those costs exceed your credit card limit. And if you qualify, there’s no reason you shouldn’t be able to take out a personal loan urgently – but having to apply for a loan differs from whipping out your credit card at will.

A personal loan is better suited to larger expenses that will bring you long-term benefits. If a credit card is your shield against sudden unplanned expenses and a handy substitute for cash, a personal loan is a tool you can use to carry out a plan. It could be a plan to upgrade your home, get your own transport, further your or your family’s education, or even consolidate all your other debts into one convenient amount to pay off every month.

For large, long-term expenses like these, a personal loan makes more sense than a credit card because it offers a lower interest rate, a fixed monthly payment and enforced discipline. You can’t add more debt to a personal loan on impulse, the way you can on a credit card. But as mentioned already, if you have a plan for which you take out a personal loan, you need to stick to the plan. When you qualify for your loan and a comparatively large amount suddenly appears in your bank account, it’s hard not to feel rich and start spending accordingly. 

Just like a credit card, it’s important that a personal loan is spent on its intended purpose. Your decision on which to use is going to depend on your needs and your circumstances. It’s not an either/or choice, of course. These are 2 different forms of credit with different uses and their own pros and cons, but both can help smooth out life’s financial bumps if you use them responsibly.

So, there is nothing to stop you starting off with a credit card for cashless day-to-day expenses and online shopping, with the advantage of that interest-free period. If you manage your credit card and other credit payments properly, when the time comes to finance a bigger project, you’ll be well set up to explore personal loan options too.

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