Credit Cards or Personal Loans
Did you know that possibly your loan can be way cheaper than you thought? Naturally, you think of your bank when you want to borrow money or take out a loan. But unfortunately, this isn’t the cheapest solution in most cases. Credit cards issued by ICS, Visa, Mastercard, or American Express but also credit cards issued by your bank charge the highest possible interest rates in the United States. Did you know you pay off a credit card almost double within five years? It’s way cheaper to switch your expensive credit card to a personal loan in most cases. The interest rate on a credit card can skyrocket.
But on the other hand, you have a credit line. With a personal loan, you receive a lump sum on your bank account and no credit at all. And what to think about some dubious loan providers who charge insanely APRs on personal loans? All questions that might arise when you’re doubting between a personal loan or ordering an (n extra) credit card.
So what are the pros and cons of both forms of borrowing money? In this article, we’re going to take a close look and research the matter.
What are the differences?
In the case of a personal loan, the borrowed amount of money will be available within a split-second and deposited in a lump sum on your bank account. The total loan has to be repaid over time monthly, including a hefty interest rate. Most of the time, the set APR is fixed as well as the duration of the loan. When you take out a personal loan, you know exactly when the loan is repaid. In some cases, you can also deduct the interest from your income tax. These are the main advantages of a personal loan. However, the downsides of a personal loan is that repaid amounts cannot be withdrawn again, which makes this type of loan a little bit less flexible compared to other loan formats.
Most of the time, it’s also not possible to pay off penalty-free in advance. Therefore it’s quite smart to do your research and compare different loan types to see which one suits your personal situation best and why and how much you want to borrow in the first place.
The term speaks for its self. Whenever you need cash fast, you can opt for a short time or quick loan, sometimes called a payday loan. The duration of these loans is concise, varying from a few days to a few months. This can be quite handy if you don’t want to sign lengthy contracts but do need money as fast as possible. This type of loan you can get most of the time without any Credit Check performed by your Credit Bureau. This is ideal for people with low, harmful, or no Credit Score at all.
A credit card is as you might know a method of payment that you can use to buy things using credit. The spent money isn’t withdrawn from your checking account straight away, as it would typically do with a regular debit card. The full credit has to be paid off later. Either in one payment or small, monthly installments. A credit card is, therefore, most often used as an additional form of payment besides a regular debit card. Things like online shopping or spending money abroad are only possible with a credit card in most cases.
When is a credit card better than a personal loan?
Credit cards are, in general, better to make small purchases with up to any amount you feel comfortable with, and you’re able to pay off within about a year. Most credit cards offer 0% APR, so if you can spend a couple hundred or thousands here and there, while neatly paying off your credit card statements every month, it’s all fine and cheaper compared to taking out a personal loan.
When is a personal loan better than a credit card?
In general personal loans are better when you need a significant amount of money as fast as possible, and you know you can repay it over the next few months or years. In most ideal cases, this would be for a home renovation, tuition fee payoff, buying a new car, or consolidating debt. Please note that the APR on personal loans is a lot higher than credit cards but, in general, a way better option, especially for people with a good credit score. Also, when you have a decent income or a co-signer, a personal loan is a better solution because you don’t have to worry about too much about paying back very fast. Do your research, however, and shop around for the best possible rates and terms. Most personal loans cannot be repaid quicker without paying the penalty. Like we outlined before, in general, a credit card is more flexible but also capped as in the maximum amount of money you can borrow. Also, for credit cards, you cannot put up any collateral while for a personal loan, you can put up let’s say a land deed or car title. The bottom line here really is that credit cards are an excellent method of payment for small purchases.