We need money for various reasons - to buy a house, for child’s marriage, to buy durables, for medical emergencies. Money is all required for any kind of emergencies. There are multiple ways to borrow money and different rate of interests. Two of the major form of moneylenders are Personal Loans and Credit cards. Here we will explore between the two and discuss some of the advantages and disadvantages and help you chose the best option for you. Though the answer depends on what you’re buying and how you intend to pay it back.
Pros and cons of a personal loan
Pros:
- Lower interest rates than credit cards.
- Repayment schedule means your debt comes with an end date.
- Can be cheaper in the long term.
- No temptation to overspend.
Cons:
- Minimum loan term means that you’ll carry the debt for more than a year
- Can be inflexible (may not offer early repayments)
- Can take longer to apply for
Suitable for:
- Large one-off purchases like cars or home improvement
- Large debt consolidations
- Borrowing over a long period of time
Pros and cons of a credit card
Pros:
- Immediate spending
- Can come with rewards
- Convenient option if you need a constant cash flow
- Balance transfer for debt consolidation
- Interest-free grace period
Cons:
- Usually carry higher interest rates
- Only requires a minimum repayment each statement period, which means your debt can accrue interest indefinitely
Suitable for:
- Smaller purchases
- Small debt consolidations
- Everyday shopping or retail purchases to earn reward points
- Spending amounts that you can be paid back within the interest-free introductory period
Which one is right for you?
What do you need funds for?
If you’re looking for one-off payments for large expenses then opt for personal loan, but if you want a regular access to credit then go for a credit card.
How do you manage your repayments?
Since credit cards are ongoing form of credits and personal loan have limited credit and come with an end date. Since there is no problem with the type of credit then you should look for hoe structured and and disciplined are you with your repayments. Since there are more structured payments structure for personal loan, then maybe it is worth considering.
Are you consolidating debt?
It is always important to consider your options carefully. How much debt you have and how much you are willing to accumulate, and does it include loan and credit card accounts. You also have the option of consolidating your credit card to a personal loan, which can help you save.
How much are you looking to borrow?
Both credit and personal loans have different limits, depending upon your credit score. Generally personal loans have more limit than credit card.
Bottom line
Personal loans and credit cards are two forms of borrowing that both offer attractive benefits and some notable drawbacks. Which you choose is ultimately up to you, and many people have used both at different points for different purposes. Be sure to compare your options to make an informed decision.
