How can i choose either credit card or personal loan (Credit Card vs Personal Loan) Which is best option?
Any person who wants to borrow a loan will be at crossroads when it comes to deciding whether to use a Credit Card or a Personal Loan. Whereas Credit cards are most suitable for short term expenses which can be easily paid within a month, personal loans will be chosen by people interested in long term expenses or someone who wants to make a big purchase. The decision on whether to use a personal loan or credit card will greatly be determined by the amount of money you wish to borrow, the repayment period and your credit score.
Personal Loans
Personal loans usually come in lump sum and may either be unsecured or secured. People who have a good credit score can get a personal loan that has lower interest rates hence getting more benefits unlike those who have to rely on Credit Cards. While using a personal loan, you will be given a large amount of money which must be repaid in installments within the stipulated time frame which may be between 2-5 years. Full payment made after this period will include your accrued interest together with the principal. Apart from the principal and interest, a loaner may also ask you to pay the origination, application and prepayment fee depending on what you have agreed.
Credit Cards
A Credit Card is one of the most expensive sources of finance that you can get your hands on especially if you have short term expenses. Some Credit Cards offer double the amount as interest rates unless you have a very good credit score which will allow a slight decrease. Once you are given a Credit Card, you will be required to make monthly installments which in most cases are usually 1%-3% of the total borrowed amount. To avoid the high interest rates, you will be forced to pay the borrowed amount in one full installment. This is because Credit Card interests are usually calculated based on the average daily balance of the month that follows.
How to Decide Between Credit Card vs Personal Loan
Both credit cards and personal loans have quite a number of advantages and disadvantages to the user. It is therefore recommended that you select the best choice depending on what you want to achieve. Some of the factors that can help you decide on whether or not to use a credit card or personal loan for your financial issues include:
- The amount of money you want to borrow
If you are not in need of a large sum of money, then using a credit card is the best option since you will not have to pay high interest rates for a small amount borrowed. However, if you want to carry out a very large project, then a personal loan will be good enough since the rates are fair.
- Repayment Period
Most credit cards are paid using monthly installments which must be repaid within a short time frame to avoid an increase in interest rates. It is for this reason that you should use a credit card when you want to repay the borrowed amount within a short period. Personal loans on the other hand will suit individuals who want to repay the loan over a long period of time.
- How you want to spend
Most credit card owners tend to overspend when making a certain purchase. If overspending is your most preferred choice then a credit card will do you good. Personal loans are usually used over a long period of time hence misuse is very rare.
Every person has their own preference when it comes to personal loans and credit cards. It is recommended that you exercise caution when using borrowed money regardless of whether it is a personal loan or credit card.