Personal Loans versus Credit Cards: Journey to Financial Literacy

Thousands of financial institutions, from banks to post-office offer various kinds of credit. Nowadays, there are institutions that specialize in personal loans of various kinds.  Personal loans and credit cards apparently seem similar to a person who is not fully aware of the financial intricacies. Both provide immediate relief in time of need, payable over a period of time and come at a price by way of interest. There are, however, major differences between the two products.



The striking differences lie in the purpose, structure, duration, terms, and pricing. Credit cards offer unlimited duration within a certain predetermined credit limit provided you don’t default on your payments. The holder can use the card for all daily needs. Loans, on the contrary, are given for a definite purpose, are limited to a timeframe for settlement and are subject to proper documentation and agreement.

Non-financial individuals may educate themselves easily through the websites of financial institutions. Singapore, for example, is a highly active financial market. So if you live or are planning to live there, it’s always a good idea to get yourself updated. Going over the well-researched and comprehensive lists of Loan Street Best Licensed Moneylenders in Singapore is a good start. You need to carefully examine every detail because the terms and conditions may differ, furthermore their offers and services offered. It pays to be careful before choosing as you have to protect yourself from the unlicensed money lenders and from overcharges as well.


Credit Cards

The credit card is a preferred option if you have needs from grocery shopping to flying, meaning smaller expenses. It is a perfect secured substitute for cash. The issuing financial institution checks your credit score. A Credit score is defined by Investopedia as “A credit score is a statistical number that evaluates a consumer’s creditworthiness and is based on credit history. … A person’s credit score ranges from 300 to 850, and the higher the score, the more financially trustworthy a person is considered to be”. Your social and professional background also takes into consideration. You have the option of paying the balance, when due, in full without additional charges. You can opt to delay the payment against interest, which is generally high. Most of the holders fall into that cycle of delayed payments. You have to use this facility wisely.


Personal Loans

Personal loans are of two types; secured and unsecured.

  • Secured loans are allowed against a lien on assets that you are purchasing or investing. Home loans, finance for small businesses, and auto loans fall into this category. Loans for vehicles and homes should be paid in instalments within the agreed period. If you default, penal interest is charged and goes against your credit score. Loans for small businesses can be renewed every year and may have a flexible payment system. The interest rate and payment duration are favorable for secured loans.
  • Unsecured loans are those, which are granted based on your credit score. The purpose is generally settlement or consolidation of another loan or using the amount for a relatively smaller ventures, such as buying furniture and renovation of your home. At times, individuals, go for unsecured loans for weddings, holidays or buying expensive equipment. The unsecured loans are short to medium term duration, meaning from 3 months to 24 months and carry higher fees and interest rates.

Financial decisions should be based on your actual needs Vs your capacity to pay well in time without falling in the never-ending cycle of interest payments. Have a safe financial journey!

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.