Credit Card VS Personal Loan
When you need to cover an expense then you might consider a credit card or a personal loan. Your situation will decide which of these is the best option for you.
Credit cards are better for short-term balances that you are able to pay each month and personal loans are better suited for medium or long term debt.
Credit Cards VS Personal Loans
One of the most expensive forms of financing is a credit card with the interest rate often being quite high. Your credit card will have a payment due date where you will be obligated to make a minimum monthly payment, but in order to avoid the interest you need to pay the balance back in full. The interest that is charged is calculated on the monthly average daily balance and not the ending balance.
Credit card debt is known as a revolving debt. There is a limit in the amount of debt that you are allowed to have and the amount of credit you have available each month will depend on how much you spend and what you repay.
Personal loans can be secured loans or unsecured loans. Secured loans are secured against an asset and unsecured loans will have a higher interest rate.
Either type of personal loan though will have lower interest rates than credit cards especially when you have good credit. Personal loans will give you a sum of money at once and you will then make payments of a certain period of time until the loan has been paid off with interest.
When To Use a Credit Card
Credit cards are best used as a short-term finance tool because of the high interest they carry. You should then only use a credit card for purchases that you are able to pay off by the due date.
Many credit cards usually have cash or travel rewards as well as other perks that you are not able to get with a debit card.
If you have a 0% interest card then you do have time to pay off the balance before you need to pay interest. You will still need a plan though to pay off the entire balance before this promotional period ends.
When To Use a Personal Loan
Personal loans are best for long-term finance. Personal loans can be used as capital to start a business, to consolidate debt and for big purchases like a wedding or schooling.
Personal loans usually have better interest rates than credit cards so they are a better option if you are not able to pay your balance off in full.