How to Decide Whether It’s Better to Get a Loan or a Credit Card?
If you need some cash for whatever reasons, a personal loan or a credit card could be the answer to all your financial questions. With either of these options, you can easily access funds whenever you need within the shortest period. However, you need to make arrangements on how you are going to repay the money with interest. Even so, the main issue has been deciding between a personal loan and the credit card. While the latter is for use in the short-term, the former is suited for those who need enough time to repay the loan. Then again, choosing an option that is ideal for you will depend on how much interest you are willing to pay. Irrespective of whether you take out a personal loan or request a credit card, you’ll want to choose an option with the lowest cost. This guide includes information on both the credit card and person loan and how each works so you can decide on the right option for you.
How Credit Cards Works
The credit cards offer a way of payment that is convenient for whatever it is you are looking to buy, whether it’s online or in person. However, the downside of using a credit card is the regular purchases and avoiding balance payment, resulting in huge interest charges.
The fact that credit cards do not require a person to pay their balances all at once is what makes them problematic to some extent. Credit cards offer options that are too enticing, allowing you to make the minimum payment every month while making it possible for the interest to accumulate with time. The interest that is charged will depend on the annual percentage rate. If it is high, the interest charges will increase quickly. That is why the credit cards are also referred to as “revolving debt.” Although you may begin with a traditional limit, the amount which can be borrowed will depend on your rate of expenditure as well as the amount you pay off every month.
It is also important to note that credit cards can either be secured or unsecured. With the latter option, you get a line of credit which does not include collateral. On the other hand, a secured credit card requires you to put down some cash deposit to act as collateral for securing your line of credit.
Personal Loans and How They Work
In some given circumstances, personal loans may work effectively as opposed to the credit cards. Additionally, personal loans usually offer lower rates of interest as opposed to credit cards. The greatest difference with the personal loan is that you get a lump sum to use up front. Moreover, with a personal loan, you get regular monthly payment periods which usually range between two and ten years.
It is also worth noting that personal loans can be secured and unsecured, just like the credit cards. With the unsecured loan, collateral is not required. On the other hand, a secured loan will require some type of collateral before you can access. For instance, a home equity line of credit, which is a secured personal loan, allows you to borrow against your home’s equity, thus using it as collateral. Additionally, the interest paid for this loan product is likely to tax deductible.
The temptation to Spend and the Ease of Use
When it comes to using credit cards, many people are good at it. While you may easily plan for your purchases, the blessing of a credit card is also its greatest curse since it is usually easy to use. You may apply for a credit card of a good reason – home renovation, holding your dream wedding or family vacation – but the little purchases you make may end up pulling you down. Without knowing it, you may end up with an ever-increasing credit card debt with crippling interest repayments.
On the other hand, a personal loan being a fixed credit does not carry similar financially-responsible pitfalls. All you need to do is to collect the needed documents, apply for your desired amount, and spend the money according to your plans. With a personal loan, the only way to draw more money is by applying for another loan. For that reason, you do not need to get stuck in unforeseen debt.
Financing Your Next Purchase
The decision as to whether or not to finance your purchase with a personal loan or a credit card is personal one to make, so it boils down to your current financial position and what you can afford at the time.
If you’re more than confident that you’ll pay off your purchases within the interest-free period of your credit card, then using this option would be the right way to finance your short-term and medium purchases. However, if you cannot pay within the free-interest period, you are likely going to pay higher interest on your credit card.
On the other hand, a personal loan is still the most affordable credit option if you are looking to make a long-term or a large purchase. Additionally, if you want to consolidate your debt or are not in a position to pay back the purchase you make with your credit card, then going for a loan is an excellent option to pursue. If you are uncertain of what it is you want, you can always read LoanReviewHQ to get informed on matters to do with loans and credit.
In so many ways, the personal loans and the credit cards are just but the same: both of these options allow you to borrow money so you can repay it over time while charging interest on the principal amount for a specified period. However, depending on the circumstances and credit, one option could be a better option than the other. When you finally decide to leverage either of these two options, make an effort of reading the fine print and assess all the financial products available to you so you can be certain you are making the right choice.