Personal loan or credit card – when to use each
You’ve probably heard that it’s best to pay cash for all of your expenses, but it isn’t feasible for many consumers. Countless studies have shown that a good portion of Americans find it difficult covering an emergency of $ 1000.
Whether you’re looking to cover an unexpected expense or finance a major purchase, personal loans and credit cards can help. Both options give you access to the financing you need, but on very different terms.
Credit cards and personal loans have different characteristics that could be beneficial in different circumstances. Once you have decided which option best suits your needs, visit Credible’s online marketplace to compare personal loans and credit cards.
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Personal loan vs credit card: what you need to know
When you open a credit card, you take out a revolving line of credit, which means you can borrow the funds you need. You will receive a statement at the end of the month with a minimum payment due based on the current amount you owe.
Credit cards basically have a grace period in which you don’t charge any interest as long as you pay off the outstanding balance in full. You will be charged interest on any balance carried over from one month to the next. It’s easy to get trapped in a credit card debt cycle where you keep spending money on the card faster than you can pay it back.
In comparison, a personal loan is an installment loan, which means that you will receive a one-time lump sum that you will repay in fixed monthly payments. Personal loans tend to carry a lower interest rate than credit cards, and borrowers with good credit will qualify for the best rates.
You can explore your credit card and personal loan options by visiting Credible Online Marketplace.
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When should you use a credit card?
Credit cards tend to be best for small, ongoing purchases. For example, if you travel regularly for work and are looking for ways to reap credit card rewards, it might be a good idea to purchase a travel card.
You can take advantage of the unique rewards offered by credit cards, such as cash back or travel miles, all without paying a dime of interest as long as you pay off the balance in full at the end of the month. And one of the benefits of using credit cards is the borrower protection that comes with it.
Some credit cards try to win over potential customers by offering an introductory 0% APR offer, which typically lasts up to 18 months. When the introduction expiration of the interest-free period, you will be charged interest on the outstanding credit card balance.
These types of credit card offers are generally reserved for borrowers with good credit. If you can benefit from a introductory offer at 0% APR on a credit card, it may be a good idea to make a larger purchase on a credit card, just make sure you have a plan to pay off the balance.
You can visit a online market like Credible to view multiple credit card options at once.
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When should you use a personal loan?
Personal loans tend to be best for large, one-time purchases like a home improvement project. It is also a good option for debt consolidation. You know exactly how much you need to borrow, and you’ll benefit from regular monthly payments. This type of predictability is one of the biggest benefits of taking out a personal loan. You can even use a personal loan calculator to estimate your monthly payments.
Since these unsecured loans are secured only by your promise to repay the lender, your eligibility is based on your credit score. Personal loans are best for borrowers with good credit history, but some lenders offer personal loans for bad credit. Even though you may not be able to take advantage of the lowest rates on a personal loan, they can still be lower than what you would get on a credit card.
If you want to know what types of rates you can get on a personal loan, visit Credible at compare potential offers from several personal lenders at the same time.
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How to make the right choice for you
Personal loans and credit cards are both good financing options, and which one is right for you will depend on how you plan to use the funds. If you’re looking to fund a big one-time purchase or consolidate debt, a personal loan is probably your best bet.
While if you are looking to finance smaller, ongoing purchases, taking out a credit card may be a better option. If you don’t know where to start, visit Credible at get in touch with experienced loan officers who can answer all of your questions and help you determine the next steps.
Have a financial question, but don’t know who to ask? Email the Credible Money Expert at [email protected] and your question could be answered by Credible in our Money Expert column.