What is a better credit card or a personal loan? If you ever get stuck in any emergencies? Need liquid funds immediately?
We all face such a situation once when we require funds but don’t have enough savings. That can be a medical emergency or anything else. Then either we go for a credit card loan or personal loan to recover from that emergency. Whichever way you want to go, both methods will make cash readily available to you instantly.
But sometimes, we get confused about which type of loan is better for us- credit card or personal loan.
What is a Better Credit Card OR a Personal Loan?
Here we are discussing what a better credit card or personal loan is. If you want to know more about that, then keep on reading.
What is a Credit Card Loan?
A credit card loan is one of the convincing ways to give you instant money. A credit card offers some money to you, like a loan on your card. However, it has a credit limitation too.
Monthly, you can choose to spend those credit limits on your expenses, such as rent, utilities, and even entertainment. When the month ends or the credit limit closes, you will have to pay the principal amount of credit you have used along with the interest rate. A credit card is your credit cycle. You have to provide credit to get it again for the next month.
If you miss paying the amount in one month, the interest is piled up, and when it is time to repay, you are actually in a lot of debt. Sometimes people forget to pay the credit card amount. Then the interest keeps adding up to the cycle and makes it a considerable amount.
Generally, experts say that if you need short-term debt. Then choose a credit card as a loan.
How Credit Cards Work
Whenever you require a small or big-ticket purchase, you can get help from a credit card loan. It is handier and one of the most convincing ways to achieve it. Also, you can use your credit card online or physically in-store.
But one of the disadvantages of using this credit card is that you may lose all of your money if you lose its control once. If you cannot pay the entire balance of your designed amount, you have to pay high interest on the remaining amount. Over time, it can throw you into a debt trap.
Firstly, the credit card company doesn’t let you pay off all your balance at once. You can keep using your card to pay ‘Minimum Amount Due’ or the MAD, already mentioned on the credit card statement.
You can keep using your card until you exhaust all your remaining balance on it, although the interest keeps accumulating. Your card’s ‘Annual Percentage Rate’ or APR acts as a determining factor that decides the rate of interest you. With high APR, your interest also hiked up very fast.
That is why credit card loans are mostly known as revolving debt, making it very insecure. Some selected cards may pay some infrequent security changes.
Also Read: Loan Calculator Home EMI, Car, Bike, Personal loan
Advantages and Disadvantages of Credit Cards:-
Repaying a loan at 0% APR comes with apparent advantages, but there are many disadvantages to a credit card. Let’s see how is that.
Pros
- Each percentage of your payment goes to the core of your balance during the introductory period of your card.
- A credit card is applied for any time ever without any additional documents.
- Combine multiple high-interest loans in one place.
- Most people are eligible to apply for credit card loans.
- These cards usually come with no annual fee and some cash back or other rewards.
- You don’t need to visit the bank physically to apply for a credit card loan.
- Also, you can pay your debt with 0% APR for a limited period.
- However, you can transfer the balance at 0% interest anywhere between 12 and 21 months which is ideal for debt consolidation.
Cons
- Most of the 0% APR is between 12 and 21 months, which is not enough time to progress large debt balances.
- Sometimes the interest rates are pretty higher depending on your card’s APR.
- Because of some offers and rewards, credit card purchases tempt you to collect more debt.
- It comes with some late fees, annual fees, and over-the-time fees.
- Many credit cards charge some upfront balance transfer fee, typically between 3 – 5% of your account balance. Also, some of them are free. So make sure you check before anything.
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What are Personal Loans?
A personal loan is the most convenient way for those people who need instant cash. Indeed, It is a very short-term loan granted process available in the market. You can borrow money from a credit union, bank, or online lender. After that, you have to pay the given money back with some interest rate.
A personal loan is ideal for a long-term period. In this case, you will get 2 to 7 years to repay the loan. However, the interest rate will be added on with your principal every month. That is why most personal loans are unsecured loans, which means they do not need collateral. And this is why interest rates are relatively high because borrowers are more likely to default.
How it works
Unlike credit card loans, personal loans are easier to apply for because of their eligibility criteria, so the personal loan is so simple because it gives control over repayment.
A significant difference between a credit loan and a personal loan is that you will receive a lump amount in advance in this loan. However, credit card loans are not working that way. Credit card loans are mainly for purchases. But the personal loan is for high expenses like medical emergencies or huge EMI.
Advantages and Disadvantages of Personal Loan
It is easy to see why one can combine debt with personal debt from the above. But there are also some advantages and disadvantages present that you might know about before signing in. Considering these advantages and disadvantages, you will decide on the best way to consolidate your debt and repay them once and for all.
Pros
- It has a fixed monthly payment and set interest rate that will never change.
- The eligible criteria are less sticky than a credit card loan.
- You can enjoy a lower interest rate than a credit card loan.
- It is ideal for those situations when you need some cash instantly without any additional documents.
- Generally, you can also combine all your debt into a single new loan through a monthly payment.
- Whenever your documents are verified, you can get your money within 30 mins.
- Fixed prices make it significantly easier to repay a loan for a budget.
- Personal loans are straightforward to apply, even though online.
Cons
- Personal loans only pay off your debt (instead of eliminating it), so if you continue to use your credit card for bills, you may end up in a worse shape.
- Sometimes the interest rates of personal loans are between 13% – and 36%, with some processing fees. That can make it a little higher than a credit card loan.
- Some private lending companies charge a fee of up to 6% of the loan amount. However, lending through lending platforms is not usually as credible, so check and compare each lender.
- You are restricted sometimes to a fixed payment schedule with a personal loan.
- If you don’t have good credit, you may end up paying more APR than the minimum ad route.
Which one is better for you
Should you be confused between a credit card loan and a personal loan?
After all the discussion, the choice is yours, which one is better for you. However, you should consider which option is more suitable for you.
So let’s see, balance transfer credit cards are usually best for:
- People who can pay an upfront balance transfer fee to secure a 0% APR for a limited time
- Generally, it is best for those people who can pay their smaller debt within 12, 18, or 21 months.
- Also, who can stop using his credit card for the purchase?
Conversely, personal loans are usually best for:
- It is best for those people who want to plan a fixed monthly payment and a fixed interest rate
- People who don’t like to use credit cards.
- Also, who has a large debt balance will take several years to pay off.
Also Read: What is a Mortgage Loan? How to Get it From Bank?
Conclusion (What is a Better Credit Card OR a Personal Loan?)
So this is the detailed information about What is a better credit card or personal loan. You have to decide which one is suitable for you in the end. But make sure you check all the hidden charges of the bank before signing. Otherwise, the pressure of interest rate accumulates over time whenever the payment is late.