Most people experience expenses they cannot cover with savings at some point. In this case, two options are personal loans and credit cards. There are upsides and downsides to both.
If you’re looking for funding, either may be a good option. You should choose based on your personal needs and purpose for the money.
Before You Start
Before applying, consider what you need the money for. Outline both big and small purchases you’ll make with the funds. Ask yourself whether you will need ongoing funds or one lump sum.
You should also have your financial information ready. Assemble your tax information, credit score, and budget. These tools may help you research with more accuracy.
Also note that there are many types in both categories. Then, look for a card or loan that’s right for you. Terms vary between banks, so shop around.
Personal Loans
Personal loans are less common than credit cards, but very helpful. The bank gives you a lump sum depending on your credit. You’ll pay the money back over an extended period of time
Though the money comes at once, there’s a long repayment period. This decreases compounded interest and helps keep costs low. For this reason, personal loans are best for large purchases.
Think of a home. You wouldn’t put a mortgage on your credit card. Instead you have a loan that you pay off over a few decades.
Personal loans are similar, except you can use the money for multiple things. The payment plans are longer than with a credit card. However you don’t get more credit when you make a payment.
Credit Cards
Credit cards are very common. Most people have at least one to help with ongoing expenses. They are easily found and simple to apply for.
Credit cards have revolving lines of credit. When you pay down your debt, you can borrow up to your limit again. This allows you to make multiple purchases if you pay in full.
Credit limits are usually fairly low, especially at first. Your bank will raise your limit as your credit improves.
However, the interest rates for credit cards can add up quickly. They are best to use for mid-range expenses. Putting expensive items on your card is not advised.
If you put expensive items on your card, the interest adds up quickly. It’s best to use them for items you can afford or will be able to afford after your paycheck. Groceries, gas, and supplies are common items put on credit cards.
Credit cards are wonderful to build up travel perks and rewards. You can earn perks the more you spend. They are also extremely convenient.
Many people can get a credit card quickly online.
Which Is Better For Me?
Both personal loans and credit cards can help you access cash. It really depends on how you intend to spend your money. Your personal scenario will determine which you choose.
If you want ongoing access to funding, choose a credit card. A card can be great for everyday purchases and needs. However, be sure that you use it only for smaller purchases.
If you have a large expense, opt for a personal loan. These are much better for large-scale purchases. You can pay them off more gradually than with a credit card.
If you have an emergency, take out a personal loan. Unlike a card, a loan can prevent recurring interest and payment pressure. If you are consolidating debt, check with an advisor. Both credit cards and personal loans could help you. It depends on your unique situation.
The Bottom Line a Personal Loan or Credit Cards?
Remember, there is no singular answer. Both options have perks and downsides. Ultimately, your decision depends on your personal situation and goals.