personal loan vs. Credit Card: How To Decide Which One Is Right For You?

Due to multiple financial responsibilities, we require additional funds. Usually, personal loans and credit cards are considered to be two such options on which we can depend for any kind of personal financial needs.

However, the nature and features of both financial products are completely different. Both serve different purposes, and both have their own uses. In that case, sometimes it can be difficult to decide whether personal loans in Ireland are better for you or credit cards.

Through a comparative study, we try to know which of the two is a better option for your everyday life.

What are personal loans?

A personal loan is a short-term loan product through which you borrow a lump sum amount of money. You can borrow this amount from a bank or online lender. It is provided to you for a decided tenure with fixed monthly instalments and interest rates.

The loan tenure of a personal loan is usually 1 to 7 years. It is an unsecured loan, as you do not need to offer collateral. Its interest rate is lower as compared to the interest rate of a credit card.

What is a credit card?

A credit card is a line of credit product through which you can borrow money according to a decided credit limit. You can borrow money repeatedly by borrowing and repaying it on time.

The variable interest rate is applicable to the amount used. Even if you are unable to pay the entire instalment, you have to make a minimum payment every month.

If we talk about interest rates, in comparison to unsecured personal loans, credit card has a high rate of interest. Due to variable rates of interest, credit cards are expensive financial products. But it also has cashback and reward options.

Personal Loans Vs Credit Cards – A Straightforward Comparison

Let’s have a direct comparison between the two and get a clearer picture to decide better which one is more useful.

Point of Comparison	Personal Loans	Credit Cards
Interest rates	Loans have a lower interest rate, especially for those with a good credit score. Bad credit applicants also get lower rates with strong repayment capacity.	Higher rate of interest due to variable interest rate. Some credit cards come with a 0% interest rate, but that is only an initial offer for a limited time.
Repayment terms	Fixed repayments for a tenure of one to seven years make budgeting easier.	Repayments can be hefty due to variable interest rate that keeps fluctuating. Not making timely payments makes future instalments huge.
Flexibility of use	Can be used for any purpose. Usually, it is ideal for short-term to mid-term purposes or one-time long-term use.	Majorly for financial emergencies and ongoing purchases. But suitable for the situations when you can pay back quickly as these have high interest rates.
Access to funds	Approval to fund transfer can take a few days. However, few lenders like Loanstopocket send money same day.	Once approved, you have instant access to funds, especially if you already have the card.
Credit score impact	Important role in determining your credit score. Can improve your rating if you pay timely instalments that are affordable. Also, improve credit mix, if used wisely.	Timely payment improves credit rating. However, due to high interest rates, the instalments get bigger even if there is a slight delay in repayments.
Fees	This may include processing and origination fees. But prepayment penalties and late payment fees are not common, especially with flexible lenders like us.	All types of fees are applicable. These late payment fees, annual fees, and balance transfer fees are common.

 

Which one sounds better? Personal loans or Credit cards?

Well, both financial products have their own features. But when it comes to borrowing funds, people usually look for affordable options.

No need to mention that personal loans are more affordable than credit cards. If you delay a personal loan instalment, there may be no late payment penalty. However, delaying a credit card instalment will make it huge as this financial product has a compound interest. This means that interest is calculated on a daily basis and is added to the pending principal amount.

You can now imagine why it is not wise to depend much on credit cards. They rise in cost, soon derailing your finances. We all know how people get into a debt trap due to rising credit card debt.

When to choose personal loans over credit cards?

Now that you have understood that personal loans are less expensive than credit cards let’s learn when to choose them.

• When you have a one-time big expense – If you have to spend on a big expense but one time only, personal loans are always better than credit cards. The latter one is for recurring expenses. But personal loans are for situations where you need money for one special or multiple important purposes for a set period of time. Examples are wedding costs, medical bills, home renovation, etc.
• In case of poor credit situation – Credit cards are also available for poor credit people these days. But they are extremely expensive and have a higher rate of interest. No matter how glossy is the advertisement of the credit card company. You better choose personal loans for bad credit that come with customised rates.
• If you need debt consolidation – As personal loans can be used for any purpose, you can use them to pay off multiple small debts. In this way, you will only have to pay instalment of only one loan. This lightens your debt burden and keeps you away from money mess.
• You need fixed repayments – You can never imagine having a fixed instalment in the case of credit cards. But personal loans fulfil your needs affordably and also have decided payments. The loan repayments do not rise as no compound interest is applicable on personal loans. Therefore, for a predictable journey as a borrower, getting a loan for personal purposes is wise.

Conclusion

The above comparison explains that personal loans are far better than credit cards. All across the world, millions of stories of spoiled finances due to expensive credit card debts tell us that taking a loan is better. If you are looking for funds, you can now decide easily. If you have made up your mind to get a loan, then apply for personal loans with no obligation now.