Credit is what makes it possible to make purchases without having to spend large amounts of cash. Personal loans and credit cards make good options for those who are faced with unexpected expenses or planning to make major purchases. But which one is better to use depends on a number of factors. You would not want to get stuck with an overrated repayment scheme if there is a cheaper alternative. To weigh things out first and not allowing yourself to give in to impulse can save you a lot of money.
Rate of Interest
Personal loans generally charge lower interest rates than credit cards. You can apply for a personal loan that is enough to cover your impending outflow, and negotiate for repayment terms that you can easily comply with. However, there are credit cards that offer zero interest as an introductory promo. This means that you can purchase through your credit card and not incur interest charges for a limited duration, 6 months in most cases. If you are certain that you can repay the entire credit within this time, then using a credit card instead of getting a personal loan may be a good idea. But the problem with credit cards is that, you might be tempted to pay only the minimum amount due, which barely reduces the balance. Just imagine how much interest charges your credit card balance will accrue when the introductory period lapses.
A good credit rating is what can get you approved of a personal loan, but if you had problems with your debts in the past, your chances are slim. Your credit card should prove handy in times of an emergency. However, by not using your credit card properly, you can get your credit score compromised. A major expense that cannot be repaid within a short period of time is likely to become a burden that will only pull your credit score down. If you must use a credit card, you should know exactly how it works.
Personal loans can be repaid for a year or two as per approval by the lending institution. You are to pay a fixed portion of the loan plus interest monthly. Should you default on a payment, you can arrange with the creditor to allow you to make an extra payment for the following month to settle the unpaid due. Credit cards rarely offer this payment policy. It is either you pay the entire balance by due date or charges will keep on posting.
About the Author:
This article was brought to you by Will. Will has been working in the finance industry for many years. He is also a content writer for personalloans.com.au.