If you need to borrow money to pay down your debt or to cover an unexpected expense, you have a few options that you can take advantage of. For many, these options boil down to personal loans and credit cards. But how do you know which is the right fit for your needs? Both personal loans and credit cards can provide you with a quick cash flow. However, there are pros and cons that you need to consider before you borrow from either resource. Let’s first explore both options in greater detail to give you a better understanding of how they work.
We all know about credit cards. But personal loans? Those might be new ground for you. Personal loans let you borrow money that can be used for various needs, from debt consolidation and emergency expenses to home repairs and medical expenses. To get a personal loan, you’ll need to secure it from a bank, online lender, or credit union . The rates, requirements, and terms depend on where the loan is coming from and your financial status. A personal loan is similar to a car loan, mortgage, or student loan. First, you apply for how much money you need. The lender then looks over your credit report and payment history to see whether you qualify and how much interest you’ll have to pay. For the most part, a better credit score equals lower interest rates. It also means that you will save substantially on total interest. Once you are approved and have the loan, you’ll begin to repay it in monthly installments. This continues until you have finally paid off the debt in full. Please note that there are different types of personal loans, and some don’t require a credit check depending on the lender. Although these loans are often smaller and have high interest rates, they are a viable option if your credit isn’t in the best shape. Car title loans are another personal loan option that is typically relatively short-term. These work by you putting up your car title as collateral. Again, these loan types tend to come with really high interest rates. And then there’s the unsecured loan. This is one of the most popular types of personal loans, as they aren’t backed by collateral. Although a credit check will likely be required, you don’t have to worry about your vehicle getting seized if you default on your repayments.
Although every situation is unique, there is a rule of thumb you should always consider when choosing between the two options: Personal loans are typically the better route to go when you need to pay a larger expense over a longer time. On the other hand, credit cards are often better when you have smaller expenses that you are capable of paying off in a relatively short amount of time. This is because credit cards are known for having higher interest rates than those of personal loans. As such, carrying a lengthy balance on a credit card can add up over time and become quite costly. Of course, there are exceptions to this rule – often ones that depend on the card and the loan terms. Like anything else, there are pros and cons to both credit cards and personal loans. Let’s take a moment to explore these in each option.
As such, you want to always be sure that you ask your lender about these types of charges before agreeing to anything.
As you can see, you have a lot to think about. However, your decision really comes down to what you’re trying to accomplish. If you have an unexpected expense that needs to be paid off – one that a credit card can’t cover – a personal loan will allow you to do so. If you’re smart with your money and unfazed by the temptation of credit cards, you can effectively use them to build your credit. But you have to be resolute and unwilling to bend. The moment that you start using your credit card irresponsibly, all bets are off. If you’re interested in learning more about improving your financial status, we invite you to check out the rest of our articles . You’ll find an assortment of tips and guides that can help you along the way. And as always, if you have any questions, feel free to contact us so that we may assist you. We look forward to serving you and hope to hear from you soon. Sources https://www.mycreditunion.gov/about-credit-unions/credit-union-different-than-a-bank https://www.experian.com/ https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-an-interest-rate-and-the-annual-percentage-rate-apr-in-an-auto-loan-en-733/