How Personal Loans Compare to Credit Cards
Jun 15, 2025
Break down the pros and cons of personal loans vs. credit cards
Introduction
When it comes to borrowing money, personal loans and credit cards are two of the most accessible options available to Malaysians. Both serve different purposes and come with distinct features, costs, and risks. Understanding their differences is key to making the right financial decision, especially as banks increasingly offer debt consolidation options or cash advances tied to existing credit card limits.
In this guide, we break down the pros and cons of personal loans vs. credit cards, and how platforms like MoneyMart Asia can help you navigate smarter borrowing choices.
1. Basic Definitions
Personal Loan: An unsecured loan typically repaid in fixed monthly instalments over a set period (e.g., 12–60 months). Interest is either flat rate or reducing balance. Used for a variety of purposes—emergencies, education, renovations, or consolidating debt.
Credit Card: A revolving line of credit with a set limit. You can spend up to the limit and repay a minimum amount each month. If balances aren’t cleared in full, interest is charged on the outstanding amount.
2. Key Differences at a Glance
Feature | Personal Loan | Credit Card |
Repayment Structure | Fixed monthly instalments | Revolving credit (minimum monthly payment) |
Interest Rate (Typical MY) | 6–15% p.a. (flat/reducing) | Up to 18% p.a. on outstanding balance |
Approval Process | Formal application, income proof needed | Pre-approved or applied via bank |
Flexibility | Less flexible (fixed tenure & amount) | Highly flexible within credit limit |
Usage Purpose | One-off use, larger expenses | Daily expenses, emergency payments |
Debt Consolidation Option | Yes, common | Offered by banks as balance transfer or cash advance |
Effect on DSR | Reduces as you repay | Can increase if balances are carried |
3. When to Use a Personal Loan
You need a large sum for a specific purpose (e.g. medical bill, home renovation).
You’re consolidating multiple credit card debts into a single fixed payment.
You prefer structured repayments to avoid the temptation of revolving debt.
Example: Ali has RM12,000 in credit card debt across 3 cards at 18% p.a. He consolidates them into a personal loan at 9% p.a. with a 24-month tenure. Monthly payments become predictable and cheaper overall.
4. When to Use a Credit Card
You can repay in full every month to avoid interest charges.
You need flexible access to funds for short-term or urgent needs.
You want to earn cashback, points, or travel rewards.
Note: Taking a cash advance on a credit card comes with immediate interest (no grace period) and often a processing fee (typically 5%). This should only be used when absolutely necessary.
5. The Debt Trap of Credit Cards
Many Malaysians underestimate the long-term cost of carrying a balance on their credit cards. With interest rates up to 18% per annum, unpaid balances compound quickly. A seemingly small monthly minimum payment can stretch debt for years.
6. How MoneyMart Asia Helps
Compare Loan Offers: Find and compare multiple personal loan options with lower rates than most credit cards.
Debt Consolidation Guidance: Our platform helps you identify opportunities to consolidate credit card debts at lower costs.
Transparent Information: We highlight terms like interest rate, tenure, and early settlement clauses so you make informed decisions.
7. Common Questions Answered
Is it better to take a personal loan or use a credit card?
It depends on your needs. For structured, lower-interest borrowing, a personal loan is usually better.
Can I use a personal loan to pay off credit card debt?
Yes. This is a common and recommended strategy to reduce interest payments.
What’s the interest rate difference between personal loans and credit cards?
Credit cards can charge up to 18% p.a. Personal loans typically range from 6–15% p.a.
Are cash advances from credit cards worth it?
Generally not. They come with high interest and fees. Use only in emergencies.
Does using a credit card affect my DSR?
Yes. Carried balances increase your monthly commitments and can hurt your DSR.
Conclusion
Both personal loans and credit cards have their place in financial planning. The key is using each tool responsibly and understanding the costs involved. For larger, planned expenses or to consolidate high-interest debts, a personal loan via MoneyMart Asia offers a structured, lower-cost solution. For short-term, manageable spending, credit cards can work well—if you’re disciplined.
Before making a borrowing decision, compare your options and understand the long-term impact. MoneyMart Asia makes that process easier, safer, and smarter.
This article was published by MoneyMart Asia (www.moneymart.asia). Starting with Personal Loans in Malaysia, MoneyMart Asia is a FREE service which offers everyday Personal Finance products in a manner similar to how you would browse for items in a convenience mart.
Photo by Markus Winkler on Unsplash
