Personal loans versus credit cards: The ultimate guide for Singaporeans

Financial surprises are like a plot twist in your favourite movie. You know it's coming, but still they catch you off guard.

Whether it's a last-minute car repair, an unexpected medical bill, or the dream wedding that suddenly seems less dreamy when the costs add up, finding the right financial solution is key.

Turning to friends or family for a quick cash injection isn't always an option, so having a plan is essential. Enter the two most popular contenders in Singapore: personal loans and credit cards. 

Each promises to save the day, but knowing when to use which can mean the difference between financial freedom and unnecessary debt. Which is the hero your wallet needs right now? Let's find out.

Understanding the basics: Personal loans vs. credit cards

While both provide financial flexibility, they’re built for different purposes. Let’s break it down so you can decide which one fits your current situation.

1. Personal loans

A personal loan is a lump sum of money that you borrow and repay in fixed monthly instalments over a set period, typically one to seven years. It’s your financial game plan upfront — with loan amount, repayment terms, and interest rates clearly defined. 

With interest rates going as low as 3.5 per cent to eight per cent p.a., personal loans are a cost-effective solution for larger financial goals or consolidating debt.

• Fixed Repayments: Borrowers repay the loan in regular affordable instalments, making it easier for repayment long-term.
• Lower Interest Rates: Compared to credit cards, personal loans offer much more affordable rates, generating savings from interest alone.
• Larger Borrowing Amounts: Personal loans often allow you to borrow up to 6x your monthly salary, ideal for big-ticket expenses.

2. Credit cards

You’ve secured a personal loan to cover your $100,000 renovation. But it doesn't stop there — furnishing the space, buying appliances, and handling smaller but critical expenses still require funding. This is where a credit card becomes the perfect partner to complement your personal loan.

Credit cards provide a revolving line of credit, allowing you to borrow up to your approved limit repeatedly. They're ideal for short-term expenses, especially when paired with disciplined repayment. 

However, credit cards come with significantly higher interest rates — 26.9 per cent p.a. in Singapore-so the key is to pay off the balance in full each month to avoid accumulating costly interest.

• Flexible Payments: Credit cards allow you to pay only the amount you use, giving you flexibility. 
• Instant Access: Unlike personal loans, there’s no waiting period for approval. A credit card provides immediate purchasing power, perfect for smaller or unexpected costs after your major expenses.
• Rewards and Perks: Credit cards often offer cashback, discounts, or miles. 

When to choose a credit card vs. personal loan

1. Debt consolidation - personal loans

You’re juggling a $20,000 debt across three credit cards, each charging a sturdy 26.9 per cent p.a. in interest. Minimum monthly repayments feel like throwing a bucket of water on a raging fire — just ineffective. 

The interest keeps growing, making it impossible to get ahead. You need a way to simplify your finances and stop the bleeding. Here’s where a personal loan or a balance transfer card comes into play.

The not so great choice: Credit card (balance transfer)

A balance transfer credit card offers a simple way to consolidate your $20,000 debt with 0per cent interest for 12 months. Every payment during this period goes entirely toward the principal, making it an effective short-term strategy for reducing debt quickly.

• If you can pay $1,667 per month, you can clear the entire debt within the promotional period without incurring any interest. 

For disciplined borrowers with steady cash flow, this can be a highly efficient solution. However, the big risk lies in missing the deadline. 

• Any remaining balance after 12 months will revert to a steep interest rate of 26.9 per cent p.a., turning it into a costly burden.  

Balance transfers are only ideal if you’re confident in repaying the full amount within the promotional period.

The clear winner: Personal loan

A personal loan provides a structured alternative, allowing you to consolidate your $20,000 debt at 3.88 per cent p.a. over three years. Instead of worrying about deadlines, you enjoy predictable, fixed monthly repayments.

• With this, your payments drop to a manageable $587 per month, freeing up room in your budget. 
• Over three years, you’ll pay approximately $2,112 in total interest, a significantly lower cost compared to carrying high-interest credit card debt.

This approach offers stability and predictability, making it a safer option for those who prefer a long-term plan with manageable payments. Personal loans are ideal for borrowers who need flexibility without the pressure of a short repayment timeline.

2. Emergency medical expenses - personal loans

Medical emergencies can come suddenly, leaving you scrambling to settle massive bills in the aftermath. In Singapore, private hospitals like Mount Elizabeth Novena and Gleneagles charge upwards of $1,200 to $2,500 per night for ward fees alone. Medical bills can easily rocket up to five figures. 

A sudden $12,000 hospital bill for surgery or treatment isn’t uncommon. While credit cards might seem like a convenient solution, personal loans provide a far better safety net for these high-stakes situations.

Why credit cards aren't built for emergencies

Credit cards offer the convenience of instant payment, which can seem like the perfect solution during emergencies. 

• For smaller bills like specialist consultations ($150–$400) or minor day surgeries such as a colonoscopy ($1,500–$4,000), they work well if you can pay off the balance in full by the next billing cycle. 

Many credit cards exclude medical expenses from earning rewards or cashback, especially for payments to public hospitals and healthcare institutions — often listed as non-eligible in the fine print of the terms and conditions.

However, certain credit cards do offer rewards or cashback for medical expenses, particularly when dealing with private healthcare providers. Notable examples of Best Credit Cards For Hospital & Medical Bills include:

• UOB Absolute Cashback Card: Provides 1.7 per cent cashback on all spend with no exclusions, making it suitable for both public and private hospital payments.
• American Express True Cashback Card: Offers 1.5 per cent unlimited cashback, applicable to medical bills, and a boosted three per cent cashback for the first six months on up to $5,000 spend.
• BOC Family Card: Grants three per cent cashback for medical bills, provided the monthly minimum spend requirement of $800 is met.

While these cards offer rewards for medical expenses, the applicability can vary based on the healthcare provider and the specific terms of the credit card. It's advisable to review the terms and conditions or consult with the card issuer to clarify if medical expenses qualify.

But here's another the issue: credit cards aren't designed for big, unexpected bills. 

• For something as significant as a $12,000 surgery, failing to clear the balance on time triggers the sky-high 26.9 per cent p.a. interest rate. 

This quickly adds up, transforming a short-term solution into a long-term financial headache. While suitable for minor costs, credit cards simply can’t handle the weight of serious medical emergencies.

Why personal loans are a game-changer

On the other hand, personal loans are purpose-built for significant, one-time expenses. They provide access to larger sums at far lower interest rates, making them a lifesaver for situations like:

• Major Surgeries: Open-heart surgery ($40,000–$100,000) or hip replacements ($30,000–$70,000) require upfront payments that no credit card could realistically cover (even with added credit limit).
• Cancer Treatments: Chemotherapy sessions, costing $10,000–$20,000 per cycle, need a repayment plan that spreads the cost without overwhelming your budget.
• Extended Hospitalisation: ICU stays or long-term recovery wards, where bills can easily exceed $50,000, require structured financing that credit cards simply can’t match.

Here's how it works:

• If you take out a $12,000 personal loan at 3.88 per cent p.a. for three years, your monthly repayment will be $352 — manageable for most people.
• Over the entire duration, you’ll pay just $1,680 in interest, which is a fraction of the $6,150 you’d rack up with a credit card at 26.9 per cent p.a. over the same three years.

Unlike the ticking time bomb of credit card billing cycles, personal loans provide stability, clarity, and a feasible timeline to regain control.

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Debunking the delay myth

A common misconception is that personal loans take too long to process. In reality, most personal loans are approved within 1–3 days, ensuring you can settle urgent bills promptly. 

For hospitals like Mount Alvernia or Raffles Medical, where upfront payments are required, personal loans deliver the funds you need without locking you in a cycle of compounding interest.

3. Travel rewards - credit cards

A European getaway promises adventure, luxury, and memories to last a lifetime.  You’ve mapped out an incredible $15,000 itinerary through Paris, Rome, and Zurich, complete with flights, hotels, and unique experiences.  Flights on Singapore Airlines cost around $2,000 per person, while accommodations at popular spots like Novotel Paris Les Halles or Radisson Blu Zurich range from $300–$400 per night.  Add in dining—perhaps a rooftop dinner at Les Ombres overlooking the Eiffel Tower ($250 for two) or a traditional Roman feast at Armando al Pantheon ($100 per meal)—and the total quickly stacks up. The big question isn’t just how to fund this trip but how to do so without financial regret. Should you use a credit card to maximize rewards or a personal loan to spread out the cost?

Why credit cards are the ideal travel partner

For trips under $15,000, credit cards are unmatched in rewards and convenience. Here’s why they’re your best bet:

• Turn Spending Into Rewards
• • Using a travel card like the Citi PremierMiles Card, every $1 spent overseas earns 2 miles. 
  • Spending $15,000 earns 30,000 miles, which can be redeemed for a one-way flight back to Europe, valued at around $500–$600. 
  • Cards like the UOB PRVI Miles Card also offer higher rewards for specific categories like hotels or dining, maximising your returns.

• Perks That Elevate Your Experience
• • Premium cards come with travel-focused perks, such as complimentary insurance (valued at $100–$200) and lounge access worth $40–$50 per visit. 
  • Imagine starting your journey at Changi Airport’s SilverKris Lounge, sipping champagne while waiting for your flight.
  • Many cards also provide discounts — save up to 10per cent on luxury hotels booked via Agoda or Expedia, turning a $5,000 hotel bill into a $4,500 splurge.
• Split Big Costs Without Extra Interest
• • Large purchases like a $3,000 guided tour of the Swiss Alps can be split into 0per cent instalment plans over six months. 
  • Instead of feeling the pinch, you’d pay just $500 per month without accruing additional charges.

Not all places accept credit cards

While credit cards are fantastic for pre-booked flights, hotels, and tours, remember that not all destinations accept them. In smaller towns or local hotspots, cash is king. For example:

• Venice gondola rides: Typically €80–€100, and many operators only take cash.
• Farmhouse stays in Tuscany: Some rural accommodations don’t have point-of-sale (POS) systems.
• Local markets in Paris or Rome: Whether you’re buying vintage goods or fresh pastries, vendors often prefer cash.

Having savings on hand ensures you’re prepared for these cash-only scenarios without scrambling to find an ATM (and paying high foreign exchange fees).

When personal loans make sense

If your dream European vacation involves family or extended luxury, and costs exceed $20,000, personal loans may offer the stability you need.

A 10-day Danube River luxury cruise for a couple costs upwards of $15,000, and a villa rental in Tuscany can hit $5,000 per week. Credit card limits might not suffice for such costs, making a personal loan a smarter choice.

Borrowing $20,000 at 3.88 per cent p.a. over three years translates into monthly payments of $586. This structured plan prevents financial surprises and ensures you can fund your trip without maxing out your credit card.

Some travel loan options in Singapore include:

• HSBC Personal Loan: Rates starting from 3.4 per cent p.a., perfect for big-ticket travel expenses.
• DBS Personal Loan: Borrow up to 10x your monthly income.
• OCBC ExtraCash Loan: Quick approval for urgent bookings, with flexible terms.

Parting ways with debt: Your travel takeaway

While credit cards excel for mid-range trips, giving you rewards, perks, and flexibility, personal loans are better suited for higher-ticket, indulgent vacations. But here’s the catch:

• Before swiping your card or applying for a loan, ask yourself if this trip is worth going into debt for. Travel is fleeting, but repayments can last months or even years. 
• Carefully assess your budget, set aside some savings for cash-heavy portions of the trip, and align your financial strategy with your goals.

4. Daily essentials - credit cards

When it comes to managing everyday essentials like groceries, utilities, and transport, credit cards shine as the ultimate financial tool. With $2,000 in monthly expenses, the right card doesn't just simplify payments — it turns every transaction into a money-saving opportunity. 

While useful for big-ticket needs, personal loans are simply out of place for routine spending.

The power of credit cards for daily expenses

Imagine this: 

• You spend $600 on groceries, $300 on utilities, and $300 on transport. 
• By using a cashback card like the UOB One Card, which offers up to 20 per cent cashback, you instantly save $400 each month — adding up to $4,800 a year. 

That’s real money back in your pocket for expenses you’d already planned to pay.

Credit cards also offer unmatched convenience. 

• All your recurring payments — from telco bills to public transport — are consolidated into one monthly statement. It's easier to manage, track, and pay, without the hassle of dealing with multiple due dates. 
• Plus, many cards offer automatic payment setups, so you never miss a bill.

Why personal loans don't work for essentials

Using a personal loan for recurring costs is like using a sledgehammer to hang a picture—excessive and impractical. 

• A loan might give you $24,000 upfront (a year’s worth of expenses), but you’re locked into fixed repayments and add an extra $500 in interest. There’s no cashback, no rewards, and no flexibility.

Credit cards, on the other hand, let you pay only for what you need, when you need it. Instead of borrowing a lump sum and managing repayment timelines, you pay as you go — and get rewarded for it.

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5. Funding a wedding – personal loans

Getting married in Singapore is a once-in-a-lifetime event, but it doesn't come cheap. 

• Popular wedding venues like The Clifford Pier offer stunning waterfront settings with packages starting at $158++ per guest.
• While luxurious options at Andaz Singapore begin at $188++ per guest, inclusive of catering, decor, and venue rental. 

For a wedding with 200 guests, a banquet alone can cost $30,000 or more, and that’s before factoring in additional expenses like photography, attire, and floral arrangements.

When your dream wedding starts adding up to $40,000, you might want to think twice how you intend to finance the wedding.

With credit card: A risky romance

Using a high-limit credit card might seem like a convenient option for financing your wedding. Charging $40,000 to a rewards card could earn you perks like miles or cashback, especially if you opt for a card with travel benefits. 

If you can’t pay the full balance by the next billing cycle, you’ll be hit with interest. Your wedding expenses could balloon quickly, turning your celebration into long-term financial strain.

Even instalment plans offered by some credit cards often come with higher interest rates than personal loans. While rewards can be tempting, credit cards rarely outweigh the risks when dealing with a sum this large.

With personal loan: A perfect match

A personal loan, designed for big-ticket expenses, is a more structured and predictable way to fund your wedding. Borrowing $40,000 at 3.88 per cent p.a. over five years means fixed monthly repayments of $733. This approach lets you spread the costs over a manageable timeframe without derailing your monthly budget.

Wedding loans also give you the flexibility to pay for everything upfront, from the venue and catering to wedding photography packages at White Room Studio (starting at $2,800) or designer wedding gowns from The Proposal Bridal (ranging from $4,000–$8,000). 

With lower interest rates and clear repayment terms, you’ll enjoy a peace of mind as you celebrate your big day.

6. Emergency home repairs - credit  cards

Imagine this: A water pipe bursts in your HDB flat, flooding your living room. Or your air-conditioning unit breaks down in the middle of Singapore’s hot season. Emergency home repairs are unexpected and unavoidable, often requiring immediate action.With repair costs ranging from $2,000 to $5,000 for plumbing or air-conditioning replacements, choosing the right payment method can make all the difference.

Why credit cards are the best tool

When speed is of the essence, credit cards offer immediate access to funds to settle repair bills without delay. 

• For instance, hiring a professional plumber or air-conditioning technician may require upfront payment, and a credit card ensures you don’t need to scramble for cash. 
• Some credit cards, like the Citi Cash Back+ Card, even offer 1.6 per cent cashback on all spend, turning your crisis spending into a small win.

Credit cards also allow for instalment plans with 0per cent interest at participating merchants. This helps to spread the cost of expensive repairs without incurring additional fees. Replacing the entire air-conditioning system in your home might cost $4,000. With a 12-month instalment plan, you pay only $333 per month.

Why personal loans aren’t ideal here

While personal loans work well for large, planned expenses, they fall short in emergencies. The application process can take 1–3 days, which might delay urgent repairs. Borrowing a lump sum for a repair bill of $2,000–$5,000 may lead to over-borrowing, leaving you repaying more than you actually needed.

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7. Professional development - choosing the right tool

After handling emergencies, big milestones like weddings, and day-to-day needs, there’s another area where your financial tools play a crucial role: investing in yourself. 

Whether it’s a certification course, a professional degree, or a short workshop, professional development is a meaningful expense that can open doors to better opportunities. 

But like the other scenarios before, the question remains: should you use a credit card or take out a personal loan? Let’s break it down.

When	Which	Why
Pursuing a Certification Course	Personal Loan	Fixed repayments and lower interest make it a reliable choice for larger educational expenses.
Taking an Online Skills Training Program	Credit Card	0per cent instalment plans and immediate payment capabilities suit smaller, short-term training costs.
Enrolling in a Professional Degree Program	Personal Loan	Higher borrowing limits and structured repayments help manage substantial, long-term costs.
Attending a Short Professional Workshop	Credit Card	Instant access to funds with potential rewards like cashback make it ideal for small workshop fees.
Investing in Career Coaching	Credit Card	Flexibility and rewards make it suitable for one-time coaching sessions or smaller packages.
Funding a Vocational Training Program	Personal Loan	Affordable repayments and lower interest rates support larger commitments like multi-month training.

Personal loan vs. credit card: Side-by-side comparison

When it comes to managing your finances, there's no one-size-fits-all solution. By now, you've seen how personal loans and credit cards each serve different purposes. 

To wrap things up, let's summarise when to use each and why, so you can confidently match the right tool to your needs.

Factor	Personal Loan	Credit Card
Borrowing Amount	Larger sums ($5,000–$50,000	Smaller amounts (up to your limit)
Interest Rate	Lower (3.5per cent–8per cent p.a.)	Higher (26.9per cent p.a. or more)
Repayment Structure	Fixed monthly instalments	Flexible payments
Ideal Use Cases	Large expenses, debt consolidation	Daily spending, short-term borrowing
Rewards/Perks	None	Cashback, miles, discounts
Processing Time	1–3 working days	Instant access

Why choose personal loans?

• Lower Interest Rates: Suitable for large expenses with much lower rates than credit cards.
• Predictability: Fixed monthly repayments make budgeting simple.
• Higher Borrowing Limits: Perfect for big-ticket needs like renovations or weddings.

Why choose credit cards?

• Flexibility and Speed: Ideal for instant payments and smaller, urgent needs.
• Rewards Galore: Earn cashback, miles, or discounts while you spend.
• Short-Term Power: Best for small purchases you can repay quickly with instalment plans.

Making the smart choice

When it comes to managing your finances, choosing between a personal loan and a credit card isn't just about numbers — it's about strategy. Each tool serves a specific purpose, and understanding when to use which can make a significant impact on your financial health.

Personal loans are your go-to for large, structured expenses like home renovations, weddings, or debt consolidation. They offer lower interest rates, fixed repayments, and higher borrowing limits, making them a stable choice for long-term goals. 

On the other hand, credit cards are unmatched for short-term, flexible needs like emergency repairs, daily spending, or rewards-driven expenses. With perks like cashback, miles, and instant access, they're designed for convenience and value.

Here's the takeaway: using the wrong tool for the job can lead to unnecessary costs. Relying on credit cards for big-ticket purchases could mean grappling with high interest rates, while using personal loans for everyday spending is both inefficient and costly.

To make the best decision:

• Think short vs. long term: Use personal loans for structured, long-term expenses and credit cards for immediate, short-term needs.
• Leverage rewards: Maximize the benefits of cashback, miles, or points with credit cards for purchases you can pay off quickly.
• Stay within your means: Ensure your repayments, whether on a loan or credit card, fit comfortably into your budget.

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This article was first published in MoneySmart.