If you need to consolidate debt or borrow money to cover an unexpected expense, you will find several methods to consider. For many people, the decision will come down to personal loans vs. credit cards.
This is a big decision with some potential financial repercussions if an issue occurs, so you must determine which one is right for you.
Both personal loans and credit cards will provide you with a quick influx of money; however, each option has advantages, disadvantages, and considerations. Before borrowing using either of these methods, here are a few things you should know.
Personal Loans
Lenders offer several options when it comes to personal loans. Each of these can impact the terms of the loan.
Usually, the main difference in using a personal loan vs. a credit card is the long-term balance you carry. Personal loans don’t offer you ongoing access to funds like a credit card does. Instead, you receive a lump sum of money upfront and then have a specified amount of time to repay it completely. This is done by making scheduled payments and closing the loan when it is paid in full.
Usually, choosing a personal loan comes with lower interest for anyone who has a decent credit score. If your score isn’t very good, you still have loan options, but that will come at a higher interest rate.
You can use personal loans for almost any purpose. For example, unsecured loans will provide you with funds to pay medical expenses, repair a home, consolidate your credit card debt, or to fill in a gap in your income. If you receive an unsecured personal loan, you don’t have to worry about securing the funds with collateral, either.
Secured loans, like auto loans, home loans, and others, may also be called personal loans. With this loan, a standard procedure is followed to ensure credit approval because they will be backed with a lien on the assets using to secure the loan.
Credit Cards
Unlike personal loans, credit cards are considered revolving credit. With this type of account, borrowers usually have ongoing access to funds if they keep their accounts in good standing. You can also receive credit limit increases with credit cards, making them appealing when deciding between personal loans vs. credit cards.
While this is true, the interest rates are often higher if you only pay the minimum balance. By doing this, you set yourself up for a revolving credit problem that you might not be able to fix. There are also other fees associated with some credit cards, so it is best to know these before signing up for one.
You can find credit cards in many varieties, and they offer a high level of convenience, which makes them an option for those searching for a source of funding.
Tips for Choosing Between Personal Loans vs. Credit Cards
If you still aren’t sure which option is best for you, consider a few questions. These include:
- How much do you need to borrow?
- How long is it going to take you to repay the debt?
- Do you have good credit?
- Do you need cash?
- Do you tend to overspend?
When you answer these questions honestly, you should be closer to deciding about if you want to take out a personal loan or use a credit card.
Personal Loan vs. Credit Card: Choosing the Best Option
When it comes to choosing between personal loans and credit cards, you have several things to consider. Keep the information above in mind to decide which option is best suited for your needs. Taking time to review the facts and getting to know what both offers are the best ways to decide on personal loans vs. credit cards.
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