Should I Get A Credit Card Or A Personal Loan?
If you need some cash for a holiday, or a new TV, or you're stuck in debt and want to try and get out, you'd probably be thinking to get a personal loan or a credit card. Each has it's own pro's and con's, and with the interest rates on both pretty similar to each other it could be a difficult choice as to which you want to choose.
Credit Cards Vs. Loans
The main difference between personal loans and credit cards is the repayment structure. With a personal loan you are given a set period in which you have to pay the total amount off. With a credit card, you can keep the balance owing on there forever, as long as you continue to make the minimum repayments. Which one suits you best may depend on your situation, and what you need the money for.
You Need To Borrow A Set Amount For A One Off Purchase
In this instance a personal loan may be the better option. This is because you don't really know how high your limit will be on a credit card you will apply for until you get approved. This means if you want to purchase something for $10,000 and you apply for a credit card to do so, only to receive one with a limit of $6,000, you will be stuck with a credit card you can't use for what you wanted it for. If you do this then need the other $4,000 and decide to get a personal loan for this amount, then you will have that credit card on your file and may be refused the personal loan.
When you apply for a personal loan, you apply for a set amount, although you won't know if you will get this amount until your application is approved, your lender can usually give you a general guide as to whether you will or won't get approved before you apply.
Another advantage is that you will not be tempted to spend more in the future. If you get a credit card to fund this initial purchase, you might start yourself off on a life of debt as you will have the credit card at the ready, loaded up with easily accessible funds.
You Need To Borrow A Small Amount To Hold You Over
If you need money fast, and you will pay it back in a month, then a credit card is definitely your best option. This is because credit cards offer a 0% interest rate on any purchases as long as you pay the total amount back within the interest free period, which is usually up to 55 days.
BEWARE that this only applies to purchases made with the card, not cash advances. Which means if you need the money to pay bills or anything else you might use cash for usually, stop! Pay for the bills using your credit card, do not go to an ATM and get the cash out of your credit card, you will be slugged with a high interest rate, around 20% or higher, straight away, there is no interest free period on cash advances.
You Are Trying To Pay Off Your Existing Credit Cards
You might think that getting a new credit card to pay off your old credit card sounds silly, but in this case it is actually a better option than getting a personal loan. This is due to a thing called 'Balance Transfer'. If you search for a credit card with a balance transfer offer, this allows you to transfer your outstanding balance on an old credit card to your new one, the new card will have a balance transfer offer which means you will pay a tiny amount of interest on this balance for a certain period of time. To make this clearer, here is an example.
Bob has an existing credit card with an outstanding balance of $3,000, every month he gets charged the interest rate of 19% p.a. Bob goes and applies for a new balance transfer credit card and transfers his $3,000 balance to the new card. Now he has $0 outstanding on his old card and is no longer paying his 19% rate. Now his $3,000 is on his new credit card with a 0% balance transfer rate, which means he pays no interest on this $3,000 for set balance transfer period, which in Bob's case is 6 months! He can now pay off this balance quicker, and hopefully by the end of the 6 months. If not the interest rate on this outstanding balance simply reverts back to the usual purchase rate of the new credit card.
Compare Credit Card Interest Rates Against Personal Loan Interest Rates
The easiest way to do this is to open 2 windows on your computer, in one have a list of credit cards in the other have a list of personal loans. You can do this by clicking the following links to get to these tables.
Credit Cards Tables
Personal Loan Tables