Credit cards can be regarded as types of loans, although they are ideal for short term balances that you can pay off each month.
Personal loans, on the other hand, are ideal for medium or long term debt.
With personal loans, you get a lump sum and you make equal payments over a specified time period until the loan is paid off. A personal loan can be a more affordable way to finance a large purchase than a credit card. They often also have lower interest rates compared to credit cards.
When you get a personal loan you are limited in terms of how much you can borrow. With a personal loan, you can’t borrow more money without completing a new loan application.
Before deciding between a credit card or personal loan, you need to be clear about how credit cards work.
How do credit cards work?
Credit card interest rates are generally higher.
You also need to pay your credit card off in full to avoid interest charges.
Credit cards are a form of revolving credit, so they don’t put an “end date” on the debt. They also have a credit limit that you can use as often as you like.
They are unsecured, so there is no collateral required.
Credit cards offer more convenience than personal loans. They may be easier to qualify for and provide easier ways of making payments. Instead of having to carry large sums of cash around, using a credit card is a much simpler option.
With a credit card, you also get instant access to finance, giving you spending power when you need it most.
They may also be ideal for paying for unexpected financial emergencies.
When trying to decide which the better financial solution is, a credit card or personal loan, it’s important to weigh the advantages and disadvantages of each. You also need to take your financial situation into account in addition to how you will be using the finance.