If you have an expense coming your way or a large purchase, it is hard to choose if you should pay with a credit card or a personal loan. No matter how you go, each type of decision will have its own benefits and may not align with your goal.
Personal loans are designed to offer borrowers a large lump sum of money, usually will come with a fixed rate. Personal loans can be used for many purposes such as home repair, debt consolidation, car purchase, medical expenses, and much more. Additionally, personal loans will be offered at a lower rate and longer-term period than credit cards.
On the other hand credit cards will be a revolving line of credit that most individuals use for day-to-day expenses. Credit cards will come with higher interest rates and much more flexible repayment periods.
With a credit card, you are able to choose if you want to pay off the full balance or make a minimum payment which can increase the interest charge over time. Before deciding if you want a personal loan or a credit card it is important to understand your needs.
If need a large amount of money you might want to consider a personal loan, but if you need to make smaller everyday purchases credit cards will be a better decision. No matter which option you proceed with it is important to understand the terms and conditions of both options.
Personal loans will be a type of installment loan that borrowers use to finance their expenses. When you borrow a personal loan you will receive a lump sum of your money usually deposited to your account, these loans are paid with installment payments over a period of time. A personal loan can range anywhere from 1-7 years depending on the lender and can be usually for things such as vacations, weddings, bills, and anything that the borrower needs the funds for. Typically personal loans will carry lower interest rates and have much stricter approval criteria. Getting a personal loan can be quite beneficial for many, here are some pros and cons of getting a personal loan:
Benefits of personal loans:
Negatives of personal loans:
Credit cards will be the type of payment card that you can use to borrow money from a bank or financing institution to use for purchases or payments. Essentially credit cards are a type of line of credit that you can use and repay as you need. Credit cards can be a nice way to build your credit profile to help you with your future loans such as mortgages. Credit cards offer rewards for using them such as cash back, points, travel stay, and much more benefits. Even though credit cards are a beneficial tool to use wisely you should pay your balance in full each month to avoid paying interest. Since credit cards will come with high interest it is important to plan the cost of using them to avoid overpaying and should be used on necessities.
Benefits of credit cards:
Negatives of credit cards
Credit cards or personal loans are amazing for what they offer, but there are many other options you should consider when shopping for a loan for your needs. Before applying for any loan options you need to make sure you shop around to get the best loan options that might fit your needs. Here are some alternatives to consider instead of credit cards or personal loans:
Peer-to-peer lending (P2P): Peer-to-peer lending is a type of online lending platform that connects borrowers directly with investors. This will allow individuals or businesses to borrow money from a list of investments without using traditional methods like banks.
With the P2P system, you are able to apply for a loan through an online platform and investors are able to fund your loan. It’s one software that can help you with the whole lending a borrowing process.
Getting a loan from Peer to peer platform will have a few advantages such as lower interest rates, faster funding, and a less strict approval process.
Home equity loans or line of credit: Home equity loans or lines of credit will be the type of loan that allows homeowners to borrow money again the equity they have built up in their home. Equity will be the difference between the value of your home and how much you own on it.
The nice thing about home equity loans is that you will receive a lump sum of money that you can pay back in installments. A home equity line of credit (HELOC) on the other hand will be a revolving line of credit similar to your credit card.
When you borrow the money you’re able to repay the balance over time and you are able to repeat the same steps. HELOCS will be variable meaning the terms will fluctuate depending on the market.
With both of the loans, you are able to use them for any of your specific needs without any limits giving you the full freedom to use the funds.
401(k) Loans: This will be a type of loan that lets you borrow from your 401(k) retirement plan. The amount you are able to the borrower is usually limited to around 50% of your balance and will usually be lower interest than other loans.
With 401k loans your borrow money but then pay it back into your own account with interest. Just like any loan you have a set period of time to repay the loan and if you fail to do so there are strict draw policies.
Other loans: There are many loan options available on the market and each of them has its own benefits. Before choosing a loan that is right for you be sure to compare the lender to make sure you’re getting the best benefit available for you.
Here are some other loans that might work for you, personal line of credit, cash advance, crowdfunding, business loans, credit union loans, grant and even borrowing from friends. Loans should be taken seriously and you should make a plan of how you’re going to repay it to avoid damage to your credit profile.
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