Personal loan versus a credit card.

Need Money Now? Get A Personal Loan Or A Credit Card?

If you find yourself in need of some money in a hurry, there are several options that you can choose. The two most common are credit cards and personal loans. Which one should you choose?

If you need money quickly, two of the most common financial options used are credit cards and personal loan. Both of these options come with inherent benefits and negatives. Deciding which option to choose can make a big difference in the state of your personal finances, so let’s take a look at some of the specifics you should be looking at. When you are done reading this, you should be able to make a smart decision.

Credit Card Versus Loan Interest Rates

Interest rates are a huge factor when deciding on borrowing money. The interest rate, after all, determines how much you will ultimately repay.

Credit card interest rates can vary depending on your credit score and the market. If you have less than stellar credit, you could see interest rates north of twenty percent. This could be made even worse if the Prime interest rate is currently high. In addition, these rates could vary over time. This means that with a credit card, you never really know how much you will be paying on the money you borrow over time.

Personal loans, on the other hand, generally have fixed interest rates. At the beginning of your loan, your lender will give you a fixed rate so that you can plan for the expense over time. This stability makes personal loans a favorite for those who like to plan.

Winner: Personal Loans

With interest rates that are generally lower than credit card rates and that are fixed, personal loans are the winner. Borrowers will generally pay less over time.

Revolving Versus Fixed Loans

With a personal loan, the amount that you borrow is fixed. If the amount of money you borrow is 1500 dollars, for example, that is all the money you will get. You pay back the loan and then the loan goes away.

With a credit card, the debt is revolving. That means that if you have a credit card with a 1500 limit, you always have 1500 dollars in credit. Charge it up, pay it off and you have credit again.

If you find yourself in need of loans often, a credit card could be a good solution for you. Just use it to handle your needs, pay it off and then hold it in reserve until you need money again. If you just need money now and want to pay it off and be done with it, a personal loan may be the option for you.

Winner: Credit Cards

The flexibility to have money when you need it makes credit cards the winner. They give you a financial tool that you can reach for at any time.

Loan Payments

With an installment loan, the payments are fixed. You will pay the same amount each and every month until the loan is paid off. This is great for financial planning and for paying off the loan as soon as possible.

Credit card payments are very different. With a credit card payment, you will have a minimum that you will pay each month. As you pay down the balance, this minimum will lower. This is great if you need to make smaller payments initially or from time to time. The catch is that it can take a considerable amount of time to repay the balance if you only pay the minimum.

Winner: Credit Cards

With discipline, a borrower can pay a higher monthly payment and get the same effective term as a personal loan. Credit cards give the borrower flexibility if money becomes tight and they can not make a full payment.

Credit Effects

For a balanced credit profile, consumers need to have multiple types of credit. This means both personal loans and revolving credit like credit cards. They both affect your credit differently however.

Personal loans will almost certainly have a positive effect on your credit as long as you make your payments on time. They show potential lenders that you can handle different types of credit situations.

Credit cards, on the other hand can have both a positive and negative effect on credit. If you pay them on time and utilize your available credit responsibly, they can boost a credit score. If you charge them up to the limit however, they can lower a credit score, even if payments are made on time.

Winner: Personal Loans

All said and done, if you take out a loan for 10,000 dollars and pay it off on time, you will see a boost to your credit. If you get a credit card for 10,000 dollars and charge it up, you will see a drop in credit. This makes personal loans the winner on credit effects.

Posted by
James

James Car is a finance, loan and budget expert based in the United States. After attending Brookhaven college, he went on to become a successful entrepreneur. He now enjoys writing articles that help people save and make the most of their money.