Advantages of Personal Loans vs. Credit Cards
Sometimes you need extra money — maybe you want to pay off high-rate debt, make a large purchase, or need to cover an emergency. Two common ways to borrow the necessary funds are by getting a credit card or taking out a personal loan.
Each form of credit serves a different purpose, so here’s a quick breakdown of credit cards vs. personal loans to help explain how they work.
Credit cards are revolving debt, used for ongoing expenses. Your card has a credit limit that you can tap into when you need funds, and it’s available as long as your account is in good standing. Interest applies only to the amount that you borrow. But these rates vary, depending on the market, and they tend to be higher than they are with loans. If you miss payments, interest on what you owe can add up fast and trap you in a cycle of debt.
People often use credit cards for:
• Supplementing monthly cash flow
• Large expenses, like repairs or medical care
• Travel costs
In contrast,personal loans are a lump sum that you receive in one check or deposit. They can be used to cover a single expense or several and are repaid in installments (payments) over a specific period (term), usually with fixed interest rates.
Two main types are secured and unsecured loans. The key difference between them is that a secured loan requires collateral (vehicle, property, etc.), which helps the lender ensure they’ll be repaid in full. Interest rates tend to be lower for secured loans than with for unsecured because they are less risky for the lender.
Common uses for personal loans include:
• Making a large purchase
• Paying off high-interest debt, such as credit cards
• Medical/dental bills
• Vehicle purchase/repair
• Moving costs
• Seasonal expenses
Benefits of personal loans
Taking out a personal loan can be a fast, simple, and convenient way to get the money you need; some application processes are entirely online. Many lenders offer fast approval decisions and same- or next-day funding into a checking account or will send a paper check.
You also have set payments with a fixed interest rate that fit fits your budget. This makes repaying what you borrow simpler than with a credit card, and it and protects you from fluctuating rates. Since you repay in installments, you have the flexibility to make payments over time that work with your financial situation. If you’re able to pay back what you borrow early, you save on interest, and most lenders don’t charge a pre-payment penalty. Plus, as you make payments over time, your credit score may improve.
Choosing a loan
Banks, credit unions, and online lenders offer personal loans. Note that your credit history and income affect overall loan cost and payment amounts. What to keep in mind when deciding to apply for a loan:
• Interest rate (fixed or variable) and APR
• Repayment terms and options
• The lender and customer service
• Other fees
Get help finding the right personal loan
Ready to apply for a personal loan? Contact a Lendmark Financial loan expert at your nearest branch to discuss your options and find the best loan for your needs or apply online today.