Just like any other country with a sound financial system backed by a firm banking framework, Philippines today is a growing economy with a solid banking network that is a healthy mix of both indigenous and multinational banks. These institutions have been providing financial services to individuals, corporate and institutional customers. The retail lending portfolio offers internationally vetted products such as Auto, Housing and Personal loans along with other instruments such as credit cards.
Owing to the improvised regulations backed by a stable economy, the access to these financial products have been far reaching. An average Filipino today knows how to balance his commitments and liabilities and relies quite a bit on loans from professional institutions such as banks. Products such as Auto and Housing loans can be availed against procurement of a tangible asset such as a car or an apartment respectively. However, the confusion arises when it comes to choosing engaging the right credit instrument for a plethora of other needs such as loan consolidation, vacation expenses, medical expenses etc. Two of the prominent answers that strikes our mind instantly are Personal Loans and Credit Cards, both highly capable of meeting all the casual needs that require a financial stimulus.
Let's explore the world of the most sought after credit instruments in the market today with a view to educate you about which one to choose. Needless to say, savings is one of the best approaches to answer day to day and ad hoc needs. However, when it comes to a relatively large commitment, we don’t want to drain it all. In such cases, relying on a loan instrument helps in balancing the budget.
How Does A Credit Card Work?
Its as simple as it sounds. Upon successful application and approval, the issuer provides a credit card to you with a credit limit which is revolving in nature. You can swipe the card for various types of purchases up to the extent of available limit and payback either in full before or the min. payment(a percentage of the outstanding balance) before the due date . Interest charges are applied on a daily basis, and usually shown as a monthly rate. The credit card can also be utilized for making cash advances from ATMs(if permitted) and can be used anywhere in the world.
Credit cards are generally preferred due to its mobility and acceptance across major merchant establishments. They are also known for its unique features such as rewards points, discounts & rebates and other lifestyle related deals that comes as an inbuilt feature.
How Does A Personal Loan Work?
A boon for the ones seeking financial assistance from the banks. This loan instrument works like any other loan in the market where an approved loan amount is disbursed to the applicant based upon his eligibility and other factors. The principal amount along with applicable interest charges are payable in Equated Monthly Installments(EMI) over a fixed term, pre decided as per the contract. Since it does not come with a tangible asset attached to its availment, it can be utilized for a plethora of reasons as long as it's legal and acceptable. Owing to its “No Strings Attached” feature, it is a popular loan instrument used by millions of people around the world for their casual needs that need a monetary solution. Nearly all major banks in the Philippines offer Personal Loans as a part of their retail lending portfolio.
Difference Between Personal Loan & Credit Card
As much as there are similarities, there is an equal amount of differentiating factors that makes these two products stand apart in their own respect. One of the most visible similarities between the two is that both are available for usage with no restrictions on the utility. On the flipside, unique features and benefits they offer give rise to a range of differences as below.
|Credit Card||Personal Loan|
|The credit limit is revolving in nature which means it can be used upto the limit, paid for and thereby renewing it automatically.||The loan amount disbursed is a one time transaction where the customer receives a lump sum amount for once.|
|It can be used for a multitude of purchases and charges in small or large value transactions as per the requirement.||Generally used to settle a large requirement such as loan consolidation, vacation expenses etc.|
|The cardholder is free to make a payment of his choice over and above the min, payment due each month.||The customer is required to make a fixed installment payment each month which an equated breakdown of the principal amount with interest charges.|
|When considered annually, the interest rate is quite high.||The interest rate is depicted on an annual basis and is quite low when compared to credit cards.|
How Do I choose Between Personal Loan and Credit Card?
It all depends on the prerequisites. If it is a routine and relatively small value purchase, a credit card comes recommended as long as you’re confident of paying it back within the timelines so that you’re burdened with compounding interest that continues to surge by each passing day.
However, if the requirement is of a high value, Personal Loans are a safe bet since you not only benefit from lower rate of interest, but also are in control of the loan since you know how much you’re paying each month. There are hundreds of instances where people feel victimized by using a wrong product for a specific purpose. Bottom line, you’re paying interest charges and fees for both these products and the goal should be to choose the one where the impact of fees and charges are minimal and does not burn a hole in the wallet.
In your quest to choose the most suitable loan product, comprehensive homework is the need of the hour. To make sure you don’t feel trapped at a later time, compare, decide if it's going to be a Personal Loan or Credit Card and proceed accordingly.
Bankbazaar.ph is your single window to access details on various Loans and Credit Cards in the Philippines. Use the easy-to-navigate menu options to look up for detailed information on bank specific products to help you choose the most optimal product that syncs with your need.
More Useful Articles on Personal Loan