When should a personal loan over a credit card be used?
Sometimes it can be difficult to know whether a credit card or personal loan is the right choice for your current situation. While both options have their own advantages and disadvantages, a personal loan is usually a better solution.
Credit cards offer a revolving line of credit, which means you can always access funds when you have an available balance. However, they are often associated with higher interest rates and monthly payments vary.
Personal loans offer a one-time amount of cash. Personal loans often offer lower interest rates, and most lenders offer fixed monthly payments. Some lenders allow you to take out more than one personal loan at a time, but this depends on the lender’s rules and your credit history. Those with poor credit may have more restrictions or may not get the lowest rates.
When looking for financing, it is a good idea to research your personal loan options. visit Credible to compare rates from multiple lenders and start the application process.
If you can’t decide which option is best for you, here are a few situations where a personal loan is likely a better option than a credit card:
WHAT TO DO BEFORE APPLYING FOR A PERSONAL LOAN?
Make an expensive purchase (like a car)
Unless you have a high credit limit with a super low interest rate, a personal loan is likely to offer better terms and more competitive rates. The amount of personal loans varies widely. You can use a loan to cover many expenses, including buying a car, medical expenses, home repairs, or travel.
Expensive purchases can cost several thousand dollars. The borrowing rate can affect hundreds on top of your total purchase cost, and your payment can change from month to month.
For example, let’s say you make a purchase for $ 5,000. Your credit card interest rate is 16% (slightly lower than average). If you do a Monthly payment From $ 150 a month, it would take you about four years to pay off and you would be paying an additional $ 1,657 in interest.
Let’s say you’ve decided on a $ 5,000 personal loan at 9% interest with a four year repayment plan. It would still take you four years to pay off the debt, but your loan payment would be $ 124 and you would be paying $ 972 in interest. The personal loan can save you $ 685 in interest.
Those with excellent credit or better credit history will get the lowest interest rates. You can use a personal loan calculator to compare prices and find the best terms.
Personal loans are a great option when you need to combine multiple high-yield debts into one payment. By optimizing your monthly payments, not only can you save money on higher credit card plans, but you can also make budgeting much easier.
Using a debt consolidation personal loan can help improve your credit score by lowering your debt-to-income ratio. In addition, on-time payments also help improve your credit score. An additional benefit of debt consolidation with a personal loan is that you can extend the repayment term. If you are struggling to pay off the loan, consolidating the debt can help bring down your loan payments and increase the time it takes to pay off your debt.
Remember, when you use a personal loan to consolidate debt, you are not giving your credit cards back off. You could find yourself in a much worse financial situation without having to spend responsibly.
Using a debt consolidation loan is an easy way to free up extra cash. Visit an online marketplace like Credible to get access to your personal lending rates.
5 SMART WAYS TO CONSOLIDATE CREDIT CARD DEBT – AND 5 THAT YOU SHOULD NEVER DO
When you need fixed payments that fit your budget
Credit cards are handy, but the monthly payment changes based on how much you owe and whether your interest rate has increased. If you want to live on a budget and it is important for you to know exactly how much you will be paying each month, opting for a personal loan is your best bet.
When you take out a personal loan, your lender is likely to offer you a fixed repayment period (usually one to five years). Your total loan plus interest will be split over the total payments. This enables the lender to offer you a fixed payment each month.
HOW MUCH WILL YOU PAY FOR A PERSONAL LOAN OF USD 40,000?
The bottom line
Personal loans are a great option when you want to make a large one-time purchase, consolidate debt, and have fixed monthly payments. Before applying for a personal loan, visit Credible to connect with expert loan officers and get your personal loan questions answered.
Do you have a finance-related question but don’t know who to ask? Email the expert for credible money below [email protected] and your question could be answered by Credible in our Money Expert section.