Are you struggling with your finances? Unexpected car repairs, illness, or job loss may be putting you in a significant financial bind. If you don’t have enough money saved up, you may be considering getting a loan.
Borrowing money is never fun. Whether you pay for your purchases on a credit card or take out a loan from the bank, these will eventually cost you money. But, there are times in your life where you just have to do it. So your choice may come down to – do I go with a personal loan or a credit card?
When you take out a personal loan, you get one large sum of money. These are installment loans that you will pay back over a period of time. The interest rate on a personal loan can range from 6% to 36%, depending on your credit.
You should consider getting a personal loan if you;
- Have good credit
- Can make monthly payments
- Need to finance a large amount
Lenders consider how much money you make and your credit score when making a personal loan. The better your credit, the better the interest rate that you can get.
You can get a personal loan at your bank or through many banks online. If you are considering a personal loan, you should go through a pre-qualification process to determine if you would qualify and what interest rate you might receive. This means that you provide some basic information to the lender including your contact information, income, and expenses. This way, you have an idea if you would qualify for the loan and what interest rate that would charge you. If you are looking at multiple lenders, this pre-qualification allows you to decide which lender you want to go with and it won’t impact your credit. When you decide, the lender starts the approval process by pulling your credit. It is possible that you may not get approved, but you won’t have multiple inquiries on your credit, which can lower your score.
If you have several debts that you are paying high interest on, consolidating them into one personal loan may be a good option if you can get a lower interest rate. Not only will you be making just one payment, but you will also pay less in interest in the long run.
Credit cards are a more expensive way to borrow money. However, there are times when using a credit card is better than taking out a personal loan.
You should consider financing with credit cards if;
- You need to make smaller purchases over a period of time
- You can pay the bill off in full every month
Credit cards can be a great way to get you from paycheck to paycheck if you use these properly. They are best for short-term purchases that you can pay back every month.
In some cases, you could use a credit card to finance and pay for purchases over time, if you are able to qualify for a 0% interest rate. Some credit card companies offer a 0% promotional rate to new card holders. If you go this route, be sure that you know how long the 0% interest rate is in effect so that you can pay off the debt before that time. If not, you could get stuck with paying a lot of interest when the rate resets.
If you have existing credit card debt and are able to get a 0% interest credit card, you may be able to transfer these balances over to your new card. This can be a great way to get your credit card balances paid down quicker if you are able to pay the balance off in full before the interest rate goes up. You may have to pay a transfer fee than can range from 3% – 5% of the balance, however, some cards will waive this fee.
When you are trying to decide between using a credit card or going with a personal loan, consider why you need the funds and how you will be repaying the debt. If you are looking for a short-term option to get you through the month and are able to pay the balance in full, credit cards are usually your best option. If you need a larger amount and more time to pay the loan off, a personal loan would be the better choice.