Personal Loan Vs Credit Card?
Personal loans and credit cards are both heard of. These are the financial ways to get an approved credit line. But it must be clearly understood why & which one to choose.
On the one hand, credit cards are convenient to be used. It must have a minimum and maximum limit where everything can be purchased with just a click. Along with ease, there are positives of a credit card. They are cashback/credit coupons, reward points, product concessions, etc. As potential borrowers, we are always contemplating the use of credit cards. When you use it rationally, credit cards can be afforded.
On the other hand personal loans are also yet another source through which you can get money. But, this option is less instant compared to credit cards.
In contrast, personal loans are less likely to be risky compared to credit cards which are an added advantage. Additionally, lenders offer lower interest rates in case of a personal loan, which is different from a credit card.
All the highlighted points make us ponder over the choice between a personal loan and a credit card.
Below are the common scenarios where a personal loan can work wonders:
1. When you need immediate cash funds:
Both the credit cards & personal loans are equally beneficial when you need money. However, when you opt for a credit card, the lender approved a fixed credit line. So what to do when the need increases? A personal loan can be easily considered.
When you choose a personal loan, you have easy access to funds. The amount depends on the borrower’s eligibility like age, income, and creditworthiness. This is a suitable way to get a desirable amount.
2. When you have a structured repayment table:
When you opt for a credit card, the EMI will be distributed between months. There is a specific payment associated with the use, which is necessary to be paid up. Let’s assume, you spent 1,00,000 on your credit card, then your monthly EMI could be 10,000. However, this where a personal loan, you would have to pay the full EMI without an exception. Under a credit card payment, you can at least pay the minimum amount when you’re in a crunch.
3. When you’re looking at a reasonable rate of interest:
Credit cards can be expensive in terms of the interest rate charged on the borrowed sum. Credit cards are costly which is why a personal loan can be a good choice. If your decision is well thought out, then the personal loan will have an interest rate between 16% to 34% against a personal loan that varies from 10% to 20%. The difference in interest rates sets apart credit cards & personal loans. Certainly, a credit card is faster in the application at a swipe, while a personal loan gets you a larger amount.
4. When you cannot manage to pay back in a shorter timeframe:
The interest rate charged on a credit card is much higher, as compared to a personal loan. Therefore, its recommended to payback in a shorter while. Also, the credit card issuer doesn’t provide a longer period to make repayments. In contrast, a personal loan comes with a flexible tenure which changes between 1 to 20 years. So when you want to choose a longer repayment tenure, go for instant loans!
5. When you want to combine too many loans
You can use a personal loan to repay older debts. A credit card loan can be fatal for your financial future. The interest rate builds up to create a pool of repayments. Here, another card is not recommended. A personal loan can suit the best for debt consolidation.
The above-mentioned scenarios are the best examples when Personal Loans are a Better Choice than Credit Cards.