When you need to borrow money to consolidate debt or cover an expense, there are a few tried and true methods available. For many people, the decision comes down to personal loan vs. credit card. So how do you know which one is right for you? Both credit cards and personal loans can give you a quick influx of money, but there are pros, cons, and considerations for each option. Before you borrow, here’s what you need to know.
Now What is Personal Loan?
Most of us know or heard all about credit card, but personal loan may be new to you. Personal loan can be taken for many reasons like Personal Needs, Vacation, House Repairing and for Urgent Needs. You can get personal loan from Banks, Private Lenders & Online Lenders. The terms and conditions are based on your financial profile & income.
Somehow Personal loan works like Car, Mortgage & Education loan. You can apply for loan with your desired amount, lender will assess your credit reports and payment history to determine whether you qualify or not & what will be interest rates. If you credit score is good then you will get a good deal. You then repay the loan in monthly installments until the debt is paid off.
Now What is Credit Card?
Credit Card also a loan instrument is usually better for short term use. You apply for a credit card to banks or online lender they evaluate your credit reports and payments to provide you a credit card. Credit Card comes with a fixed limit of amount to use. Credit Card has two important dates, First Billing Date & Second Due date. On Billing date bill generates and before due date you have to pay full or partially due amount. In between the dates you can enjoy almost 50 days interest free period. The downside is, using a credit card for regular purchases and neglecting to pay your balance in full can result in huge interest charges that accumulate over time.
Personal loan vs. credit card
Personal loans are usually better for larger expenses that take longer to pay off. Credit Card are usually better for smaller expenses that can be paid off relatively quickly. That’s because credit cards tend to have higher interest rates than personal loans, so carrying a balance on a card for a long time can be costly.
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Personal Loan
Benefits:
- Personal loans usually come with lower interest rates.
- Personal loans are great for consolidating debt if you can get a lower interest rate.
- You can apply for a personal loan online or at a traditional bank.
- Personal loans comes with TAX Benefits.
Personal Loan Drawbacks:
- You’ll have a set payment schedule.
- You’ll have to visit branch of lenders.
- You’ll usually need good or excellent credit to qualify.
- You may have trouble qualifying if you don’t have a lengthy credit history.
When to Use a Personal Loan:
- You need two to 10 years to repay the money you borrow.
- When your credit is good enough to qualify for a low interest rate.
Apply for Personal loan or Credit Card
Credit Card
Credit Card Benefits:
- You can apply for a credit card at any time, then only use it when you need it.
- Credit cards are fairly easy to qualify for if you have average or good credit.
- You can apply for a credit card online without visiting a bank.
- Some balance transfer credit cards offer 0% interest for anywhere from 12 to 21 months, making it easy to consolidate debt.
- Many cards offers good cashback and rewards points to redeem.
- You can use almost 50 days Interest free period.
Credit Card Drawbacks:
- Some credit cards charge annual fees, over-the-limit fees, and late fees.
- You need excellent credit to qualify for credit cards with the lowest interest rates or best rewards programs.
- While you can pay for many services with a credit card, if you need cash, you may owe a cash advance fee or convenience check fee, and interest may start accruing immediately.
When to Use a Credit Card:
- When you’re sure you can pay your balance off quickly and minimize interest payments.
- If you want the flexibility of paying just a minimum payment, but might want to pay more each month.
- If you can’t qualify for a personal loan.
- When you don’t want to put down collateral.
Bottomline
In a lot of ways, credit cards and personal loans are one and the same: Both let you borrow money and repay it over time, and both options charge interest for the privilege.