Personal Loans – An Alternative to Credit Card Debt

Whether we’re buying a home or keeping our business competitive, we can all require a little of extra capital every now and then. Credit cards are one of the most frequently used methods of accessing additional funds, and are popular the world over, used for everything from family groceries to plant and equipment for factories. However, no matter which provider you choose, you’ll have to accept certain inherent drawbacks to credit cards.

Personal loans offer an alternative that meets many of the needs of people who would otherwise sign up for a credit card, without many of the pitfalls and downsides that plague them.

A trap all too easy to fall into

We’ve all heard horror stories about the danger of overusing a credit card; people spiralling into debt, often taking on other credit cards to pay back what they owe on the original card like they were building a house of cards. This is one of the weaknesses of the credit card – the seemingly unlimited nature of it. Of course, you can reach daily and monthly limits that cap your spending, but even these limits will generally exceed what the average Singaporean is capable of repaying. It’s the psychological effect of having a ‘magic’ piece of plastic that allows to buy anything from TVs to heavy machinery without even seeing a banknote.

It sounds counter-intuitive, but a personal loan’s finite nature is one of its biggest strengths. There’s no temptation to keep spending beyond your means; once the loaned amount is gone, it’s gone. This means that people will have to carefully consider what they will be using it for, and are more likely to choose an amount that they are capable of repaying. Simply having that moment of stopping and thinking can head off a lot of potential financial problems.

Additionally, personal loans often have a significantly lower interest rate than credit cards, often differing by three or four per cent. That means the total amount repayable doesn’t get ahead of you and you can more carefully control your monthly repayments.

The money you need, when you need it

Personal loans are also just simply a more convenient choice for certain kinds of purchases. Unlike your magic plastic card, a personal loan provides an immediately useable lump sum ideal for larger purchases. If you’re a start-up business looking to get your manufacturing arm up and running, or you want to jump on buying a new location when the property market is good, a personal loan delivers where a credit card cannot.

To start a discussion about whether a personal loan would be suitable for you, please get in touch with a Fast Money consultant today.