Personal Loan vs. Credit Card – Which One’s the Better Choice?

personal loans vs. cedit card

High-interest debts or sudden, unforeseen expenses are always overwhelming. During these times, you urgently need money, but options are limited. Under such circumstances, you’re often left with two options–applying for a personal loan or resorting to your credit card. But personal loans and credit card loans are different from each other in many respects. The terms, conditions, and interest rates for these loans vary greatly. So the question is, which one of these is a better choice for you? Unless you wish to be stuck in an unending cycle of debts, it’s important to determine whether a personal loan or a credit card suits your requirement better. To do this, you have to understand the pros and cons that come with these options.

Personal Loan

Advantages Disadvantages
1.  A personal loan usually comes with lower interest rates. Sometimes lenders will require you to provide documentation in order to qualify for the loan.
2. It is characterized by a fixed payment plan that gives better control over finances When you consolidate your debt into one payment, you will need enough to cover that payment each month. In other words, you cannot spread out payments throughout the month, you will need to be able to pay one larger payment at one time.
3. Personal loans can be secured or unsecured. So you can opt for it even if you have no assets to pledge as collateral You may have trouble qualifying if you don’t have a long and good credit history
4. Timely payments on your personal loan can help you build a good credit history. Personal loans are not free of fees and other charges. Some lenders charge origination fees, late payment fees, and prepayment penalties.

Credit Card

Advantages Disadvantages
1. A credit card is easily available if you already have a credit card. It gives you immediate access to funds Credit card interest rates are usually much higher than personal loans
2. You don’t need a stellar credit score to get a credit card. You can easily qualify for one with a fairly good credit score Depending on the interest charges, defaulting credit card payments can quickly bury you in debt
3. Most credit cards come with reward programs that provide benefits in the form of travel points or cash-back offers  Irresponsible use of credit cards can cause your credit score to take a serious beating
4.  Some credit cards come with introductory offers of 0% interest up to 21 months. These offers can help you save a whole lot of money. Unless you cancel your credit card, there is always a temptation to borrow more money. This can be very dangerous for your financial journey.

Personal Loan or Credit Card:- How to Choose

Both personal loans and credit cards have their benefits and drawbacks. So how do you choose which one’s right for you? Be sure to consider the following:

  • The amount you need. If you need a small sum of money quickly, a credit card can take care of it. But if you need a larger sum that you cannot repay immediately, you should go for a personal loan.
  • The purpose. If you need money urgently to meet a sudden expense or to make a purchase, usually credit cards provide immediate access to funds. However, if the idea is to overcome debts through credit card refinance or debt consolidation loans, then a personal loan is just right for you.
  • Your credit score. A great credit score can get you personal loans at low-interest rates. But if your credit score is not as good, you may have to resort to using a credit card.  However, you should check out a loan comparison site, like Lendvious, to see your pre-qualified loan offers without affecting your credit score before you make any decisions.
  • Your spending habits. Overuse of credit cards can land you in serious trouble. So if you have the tendency to overspend, then a credit card is surely not your friend. A personal loan is certainly a much better choice for you.

Remember, there’s no universal solution as far as loans are concerned. So give these points some serious thought before deciding whether a personal loan suits you better than a credit card or vice versa. After all, this is an important decision in the course of your financial journey.