People generally ask a question what is better; a personal loan or a credit card. This actually depends on the purpose why either of the two is being sought. Broadly speaking both can be categorized as loans or credits with different nature and diverse inherent advantages and disadvantages. Unless, the purpose of obtaining such a facility is not clear it will be difficult to draw a comparison between the two or understand how to avail either of these options. Regardless, the idea is to understand how to avail credit cards and personal loans, and what are the advantages you can derive from both these options.
Understanding Credit Cards
In essence, why would you need a credit card? If you are a frequent traveller for business or leisure, having a credit card in the wallet is always beneficial. It can be troublesome to carry loads of cash either in Pak Rupee or foreign currency, in such a case credit cards are a sheer convenience. The other reason is safety and security while going out for shopping or travelling around in the city or outside. Credit cards could be used in times of an emergency when one may to run out of paper money or have a large sum of cash at hand readily available. Credit cards could be obtained by various banks in Pakistan, provided that you have an active account in the respected bank such as HBL, UBL, MCB and etc. There would be certain requirements set forth by the bank as well that has to be fulfilled by the individual such as a passport size picture, a copy of your CNIC and a clear credit card or loan history
You can use your credit cards in various ways and can derive several advantages:
- Helpful in emergencies and in situations where a person does not have the cash available for an immediate expense
- You do not have to carry bundles of currency notes to make heavy purchases.
- Safety and security is guaranteed.
- Partial payment of amount spent can be made while the credit card keeps working for you therefore a lot of convenience.
- Several banks offer substantial discounts in collaboration with retail vendors while making a purchase with their credit card.
- A person can withdraw cash up to 50% of credit available if immediate need for the cash arises- each bank has a different withdrawal limit which you can compare here in our credit card comparison tool.
But there are disadvantages to availing credit cards too.
- A person can go overboard in spending and end up indulging in impulsive buying.
- The usual credit rate is fairly high; between 37 to 43%. Banks levy heavy charges such as Credit Shield Cover, Renewals, Service Charges and Insurance besides substantial interest on the money used. Evaluate different charges and costs on your choice of card here.
- Large amount in the name of late payment surcharge in case the payment is not made within due date.
Understanding Personal Loans
When a person applies or gets a personal loan, the objective is somehow clear and that person knows where the money will be invested or spent. Some of the primary reasons to get personal loans could be; going for a pilgrimage, planning a wedding or paying for education like school fee, etc. The re-payment schedule and amount to be reimbursed to bank is predetermined. Personal loans are offered by various conventional and Islamic banks in Pakistan. Before a personal loan is credited to an individual, he or she should meet a set of criteria as well that may include previous banking history, bank and income statements so that the bank can have assurance that the individual could pay the bank back as well.
You need to realize the kind of advantages you can gain by availing a personal loan. Sometimes, obtaining a personal loan is advantageous over spending your own savings, depending on the annual percentage rate of the personal loan, versus the amount of earning lost when money is taken out from savings to pay for the expense you’ve planned for.
- The principal amount offered by many banks for personal loan varies between Rs. 50,000 to 2 million, depending up the financial status of the loan seeker. Hence, large amount can be available to cope up with any need depending on your salary or financial status in your business, along with the kind of credit history you hold at the moment.
- The loan amount is fixed and a person knows how much is due. Similarly, instalment amount is also fixed, therefore a person can budget his or her income and make provision for instalments on a monthly basis.
- The payable amount does not increase if all instalments are paid in time. Once the predetermined loan period ends and all instalments are paid, the person is free from debt.
- Personal loans can be used for any large expenses, and the biggest advantage of availing a personal loan is that it is an unguaranteed loan, thus you don’t have to assign specific collateral that the bank would use against non-payment.
Personal loans do come with a certain set of disadvantages as well.
- Personal loans are relatively harder to obtain in comparison to credit cards if a person does not have a credible banking history. The reason is primarily because personal loans are not backed by any collateral.
- Interest or mark-up rates are high but cumulatively speaking not as high as credit cards. Banks in Pakistan usually lend money with interest rates between 18-25%.
- If for any reason a person is willing to repay more than the instalment at any point in time, they cannot do that. Early settlements on the loan cannot be done either. Bank may charge the entire or substantial part of anticipated interest on early settlement.
You can always use KarloCompare’s comparison tool to find out best options that are available for personal loans. Be it the kind of interest rates you’re willing to pay, or the amount that you need, or the kind of purpose you would like to fulfil.