choosing between personal loan or credit cards

The finance world is full of Personal Loan and Credit Card advertisements. Remember those amazing looking vacation ads.

Below are two ads for taking a vacation either via taking a Personal Loan or using a Credit Card.

While both these ad’s promise to take you to amazing places, How do you choose between them? Which one is good for you? As the misselling and misleading of financial products are rampant these days, you have to be more vigilant than ever in choosing the right financial products for yourself.

Personal Loan vs Credit Card Personal Loan vs Credit Card

The ads may make personal loan and credit card look similar but they are completely different products altogether.

Personal Loans

When to take it:

When you want to smoothen your cash flow. This means that you want to go on a travel. For that, you will need to pay around Rs. 200,000 upfront in flight tickets and hotel bookings etc. 

Instead of making this payment upfront, you take a Personal Loan from a bank. Which allows you to break the whole payment in small monthly EMI’s. Though you pay an interest on it which ranges between 12-18% per annum.

Points to Ponder before taking a personal loan

  1. Can you afford this monthly EMI? We are assuming “yes” since you are planning for an Rs. 200,000 holiday. But before you make this decision, think if something bad happens – do you have enough cushion to take care of this EMI.
  2. What is the interest rate you are paying? Do you really want to pay 15-16% for a trip? Instead, could you not save the money first and plan the trip later?

Credit Cards

When to take it:

Credit cards are like your personal bank credit line which doesn’t charge you any interest if you return the money in the specified period. You can use them in almost any situation but with only one condition that you pay the whole amount in 30-45 days. 

Credit card EMI’s are already dominating most people’s lives and are the most preferred payment option for many. No cost EMI is probably the most sold-out financial product on earth in recent years. But let’s check-out when to take it. 

Points to Ponder before you spend on Credit Card

  1. Can you return back the total spends – including the additional spend on your trip – easily to the bank in say next 15-20 days?
  2. Don’t think – the minimum payment or part payment of the bill will solve the problem. Minimum or part payments allow you to pay back after an additional few days but you get charged at 36% of an interest rate for these additional days!! That is crazy!!

Note: Before using the credit card as a payment method, do check out these 5 super important things about credit cards.

To conclude, you should prefer Credit Cards if you can easily manage your cash flow. If not then a personal loan is preferred.

Overall though as a checklist don’t spend more than 50% of your salary on EMI & Credit cards. And one thing you would never want to do is withdrawing cash from the credit card.

If you are still confused, you can use our calculator to decide between a personal loan and credit card spends. 

RefreshMint App dashboard uses Experian (credit bureau) data to understand your borrowing behaviour. Using that we can help you decide between a personal loan and credit card. Check your financial health now.

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