When faced with spending options, you may hesitate between choosing a personal loan or a credit card. Both types of loans have their own benefits and limitations. In this article, we'll explore the key differences between personal loans and credit cards, helping you choose the best option for your financial needs.
1. What is a credit card?
A credit card is a tool that allows you to buy something now and pay for it later. The card issuer will pay for your purchases up front and trust that you will pay them back later. A credit card is a revolving line of credit, which means you can borrow up to the card's credit limit and repay it in full or pay the minimum with interest. You can use your credit card for everyday purchases or receive cash advances at ATMs. However, you shouldn't Withdraw cash using your credit card because of the large withdrawal amount.
See more: Instructions for using credit cards in Vietnam
This is money you borrow from a financial institution. You initially receive a large sum of money upfront and repay a fixed minimum amount over a period of time at a fixed interest rate. Unlike credit cards, you can't turn around your personal loan. There are two popular types of personal loans in the market: mortgage loans (in which assets such as houses, cars, land, etc. are used as collateral) and unsecured loans ( do not require collateral and are based on financial factors such as income, employment, insurance, etc. Personal loans are suitable for large and long-term purchases.
2. When should you consider a personal loan?
If you have significant debts to pay off or need to finance large purchases, consider the following pros and cons before making a decision:
| Advantages of personal loans | Disadvantages of personal loans |
| – Interest rates are lower than credit cards. – Fixed monthly payment. – Flexible repayment conditions. – Budget planning is easier due to fixed interest rates. |
– Collateral may be required. – Complicated application process. – Requires high credit reputation. |
With a mortgage loan, the interest rate may be lower due to collateral. However, you need to have assets such as a house, car, land, etc. Some financial institutions also receive assets from your relatives. With an unsecured loan, the interest rate may be significantly higher and the loan amount may not be significant. You need to have a high personal credit score or high sources of monthly income such as salary, credit line, bill payments, etc. A personal loan is a good option if you need to borrow a large amount of money and can commit to a specific repayment schedule, often with lower interest rates than credit cards.
3. When should you use a credit card?
Credit cards can be a good choice for small expenses that need to be taken care of immediately or to earn rewards. Consider the following benefits and drawbacks:
| Advantages of personal loans | Disadvantages of personal loans |
| – Interest rates are lower than credit cards. – Fixed monthly payment. – Flexible repayment conditions. – Budget planning is easier due to fixed interest rates. |
– Collateral may be required. – Complicated application process. – Requires high credit reputation. |
Credit cards can be a good choice for smaller, more urgent expenses or to earn rewards. Credit cards can also be used to buy in installments and you can choose the best card at 0% interest installment credit card.
In short, choosing between a personal loan and a credit card can be a difficult decision. Consider the pros and cons of each option, as well as your financial situation and goals. Be sure to borrow responsibly and only borrow what you can afford.
