Choosing Between A Personal Loan And A Credit Card in Hong Kong

Have you ever been in a situation wherein your wallet is empty and yet the next paycheck is still days away? Or you were just in an emergency situation that requires financing – but you do not have the savings to help you pay for it? What are your options to deal with such scenarios?

Whenever we are strapped for cash, most of us usually end up borrowing money to cope with our financial needs. This is something that we all have to go through every once in a while. Fortunately, you have a couple of options before you. In case you are in need of cash immediately, you can choose to borrow a personal loan or use your credit card.

It seems that borrowing is common among residents in Hong Kong. According to the study published in the HKEconomy.gov, the total household debt by the end of September 2015 reached HK$1,571 billion.

This is actually as much as 70% of the GDP of the region in 2014. The data revealed that the bulk of the debt, 71% to be exact, involves home loans – which is understandable because real estate properties in Hong Kong is quite high. But the rest of the debt is divided between personal loans (22%) and credit cards (7%).

That means Hong Kong residents owe HK$345.6 billion and HK$109.9 billion on personal loans and credit card debt, respectively.

This data reveals that consumers in Hong Kong are more inclined to borrow a personal loan rather than use their credit cards. Considering the high-interest rate of the latter, this is more practical. However, you have to understand that both can be effective means to supplement your financial need – as long as you are in the right situation.

When is a personal loan better than a credit card

Based on the data from the HK Economy site, people prefer to borrow a personal loan, and we can assume that the main reason for that is the lower interest rate. However, it is important for you to realize that there is a strict qualification for you to get that lower interest rate.

For one, you need to show proof that you are in a stable job condition and that you have the income to pay off the debt. Not only that, you have to possess a good credit history. When you have a lower interest, you can benefit from a lower monthly payment.

Beyond these facts, here are some reasons why a personal loan is more practical than a credit card:

Quick release of funds.

There are banks like Standard Chartered or Citibank that can provide you with quick access to cash loans. In fact, it is possible for you to get your cash on the same day as your application. If you can submit your requirements completely and you have favourable credit and financial conditions, you can get fast approval.

Access to cash.

Although credit cards are widely used, there are instances when cash is the better purchasing tool to use. It is true that you can get a credit card cash advance – but the cost to do that and the interest that you have to pay is too high.

Lower interest rate.

Another reason to prefer personal loans over credit cards is the fact that the former has a much lower interest rate. Citibank offers 4.64% on their Speedy Loan, and DBS offers 6.16% on their personal loan. A credit card from DBS will charge you 36% interest while Citibank will charge 35.5%. The credit card cash advance interest rate is much higher than these.

Easier to budget monthly payments.

Finally, it is easier to budget your personal loan payments because it is usually a fixed monthly amount – unless you borrowed it at a variable interest rate. Not only that, you can choose a longer payment period so you will only be required to pay a lower monthly contribution.

When is a credit card better than a personal loan

While the benefits of a cash loan can make it seem like the winner between the two, you need to give credit cards a chance to prove itself. According to the data from the Hong Kong Monetary Authority, there were 135.4 million transactions in quarter 4 alone in 2015.

Apparently, this was an increase of 2.7%. That means people have a habit of using their credit cards despite its high-interest rate. Here are the reasons why a lot of people choose this over personal loans.

No finance charge if paid within the grace period.

You see, there is a way for you to deal with the high-interest rate of your cards. If you learn how to pay your complete balance within your grace period, you do not have to worry about the finance charge. The grace period is the time frame between the date of purchase and the due date of the billing statement where it is included. The finance charge is only given when you carry a balance over to the next billing cycle. If you pay it off in full, then you do not have to worry about this charge.

Interest-free options.

To entice new card holder, credit card companies offer 0% interest rate for the first few months of the card. You can take advantage of these offers to purchase expensive items that you cannot pay in full at one billing statement.

Not only that, there are retailers in Hong Kong that offer 0% instalment for expensive purchases – so you do not really have to get a new card to benefit from this. You just have to ask the retailer if they have promotional tie-ins with your credit card.

Revolving credit.

Another reason why you would prefer credit cards over a personal loan is the fact that it is a revolving credit. You do not have to keep on applying to use credit. As long as you do not close your card account, keep yourself from maximizing your credit limit, and pay your dues on time, you can always rely on credit cards for emergency purchases.

Think about these facts about personal loans and credit cards before you decide which of them will suit your current financial needs. Talk to your credit card issuer or lender to know more about the details of the credit accounts.

Having the exact details will allow you to make a smart decision about the best debt to borrow. Just make sure that you have a payment plan in place before you borrow. The best way to deal with the financial shortage is to boost your emergency fund in the future. This will help you avoid the need to rely on debt when an unexpected expense comes up.