When should I opt for a personal loan rather than using my credit card?
When you need to borrow money to cover an unexpected expense (even if the “loan” is just an expense charged to your credit card), you should consider all of the options available to you. Since you probably already have a credit card, this decision is made for you. But when is a credit card not the right choice?
We asked our partners to explore a few situations where it might be more helpful to take out a loan to make a payment rather than using your credit card. Here is what they explained to us:
Four situations where a personal loan makes more sense than a credit card
The payment is considerable
It’s one thing to use your credit card for small purchases, which you can easily pay for in the next billing cycle, but it’s another thing if you carry hundreds or even thousands of dollars on your credit card. If you don’t have the cash to pay for large purchases right away, your credit card debt load can drag you into an endless cycle of unpaid balances.
An unpaid credit card balance can spoil your credit score over time. Some people will say that everything will be fine as long as you manage to settle the minimum payment, but the longer you allow this situation to continue, the more the interest payable will increase.
Why is this a problem? Read this article to understand the effect of credit card interest (compound interest) on an outstanding balance.
You are already dealing with a credit card debt
Likewise, if your credit card balance is already over 25% of your credit limit, it is recommended that you avoid taking on more debt. Such a balance can hurt your credit score (while a balance below 25% can help your credit score). Are you interested in the subject of credit use?
Come to think of it, you would like to get rid of your credit card debt anyway
In addition to having the funds necessary for a purchase, you can use a personal loan to consolidate and repay your debts. If you have multiple credit cards or loans with different balances, payment amounts, and deadlines, you may want to consider consolidating your debt. Not only will you get the cash you need to make the purchase, but you will be able to pay off your other debts and have a simplified repayment plan – a single loan, a single payment amount and a payment frequency that’s right for you. Find out how you can pay your bills faster with a debt consolidation loan.
Another benefit of a personal loan? It is a form of installment debt. Unlike a credit card (which is a type of revolving debt), installment loans have a fixed repayment duration and loan amount, which means you know when you will be debt free and how much you will repay. exactly. For comparison, look at your next credit card bill – it should tell you how long it will take to pay off your current balance if you’re only making minimum payments. In general, the duration is much longer than the repayment period of a personal loan.
You can get a better interest rate on a loan
Before charging an expense to your credit card, if you know your debt will go on for more than one billing cycle, you need to consider interest rates. If you’ve missed some payments already, your credit card rate may have gone up. Unfortunately, many people overlook this subtlety in their credit card contract. You could get a better rate by opting for a personal loan, especially if you are a home owner.
Do you want to know how much a personal loan can cost you? Try free loan quote to find out how much money you are entitled to and what your payments might be. If you are a home owner, let the loan specialist know who can customize a secured personal loan to suit your circumstances.
A credit card is useful when you make all of your payments on time and have no unpaid debts, but if you’ve had trouble paying off a large balance on your credit card in the past, it’s not. may not be the best financial decision for you. It may be more advisable to choose a personal loan if you need a sum of money, but you do not want to use it perpetually to go into debt again and again; instead, you can focus on paying down the debt, which helps you to take responsibility as a borrower.