Personal Loans VS Credit Cards

The situation when money is needed urgently, but they are not available, is familiar to many Americans. There are not so many ways to get money somewhere quickly. And if there is no friend or relative ready to lend the required amount, there are two ways out. Either get a quick personal loan from a loan company or use a credit card from one of the banks. Let’s analyze the advantages and disadvantages of both options – which in the end will be more profitable and more convenient?

Credit Card Benefits

• The interest rate on a credit card is almost always higher than the rate on a personal loan. But lower than most payday loans. To date, the usual rate on a credit card is about 20% per annum. However, if the card was issued to a regular customer of the bank, who was able to confirm its reliability, the interest rate may well be lower than the standard one.

• The tariff of any credit card implies a grace period when interest on the debt is not calculated. If you have time to deposit the required amount before the end of this period, the loan becomes free. You will only need to pay a fee for servicing the card and additional services such as SMS notifications.

• The peculiarity of any credit card is that it has a revolving amount on its balance sheet. After paying off the debt, you can again use credit funds. For those who regularly apply for credit money, this is very convenient – in fact, you can take one loan after another without going anywhere every time.

• The available credit limit is one thing, but the loan amount is quite another. You service only the actually taken debt, having the opportunity to take more at any time. For reliable credit card holders from the bank’s point of view, the bank periodically increases the amount of the credit limit.

• The conditions and repayment schedule for a credit card loan are always more flexible than for a non-bank personal loan. You can limit yourself to a mandatory monthly payment, or you can make an amount greater than the minimum. In particular, you can repay the debt ahead of schedule at any time, there are no restrictions on this matter.

• Banks offer various bonuses to credit card holders. With a credit card, you can earn special bonus points. In some banks, they can be withdrawn to your account, in others – spent on purchases from partners.

• A credit card is easy to use when traveling abroad. You can pay for purchases in another country in the same way as in the U.S. If desired, you can even get a foreign-currency credit card, which is impossible in the case of a personal loan – the law prohibits loans in foreign currency.

• Do not forget about credit card installment – special credit cards for the purchase of goods and services in installments without interest. There are more and more such cards, and they are quite convenient.

Credit Card Disadvantages

• Getting a credit card can be much more difficult than getting a personal loan. Banks put forward restrictions on the age, region of residence, income, and seniority of the client. Your credit history is also important. A credit card is not always issued only with a passport; other documents may also be required.

• Banks impose special restrictions on transactions such as withdrawing cash from a credit card or transferring funds. Usually, they are accompanied by high commissions and the termination of the grace period.

• Getting a credit card is not the fastest thing. Making a card and issuing it somewhere can take one or two working days, and somewhere – all five or seven. As for instant credit cards, they are usually less convenient and functional.

• Banks can close a credit card that has not been used for a long time. Keeping it as a backup payment instrument can be difficult.

• To apply for a credit card, you usually need to go to the office of one of the banks. Although this minus is a thing of the past – more and more financial institutions accept applications for a credit card online, and a courier delivers the finished card.

Benefits Of Personal Loans

• Getting a personal loan is easy. In the vast majority of cases, you only need a passport and reach the age of majority.

• Loan applications are approved much more frequently than credit card applications. Loan companies are often approached by those who are denied by banks – from the unemployed and housewives to students. Even a bad credit history will not be a big problem – moreover, non-bank companies often offer to improve credit rating with the help of special programs.

• You can get a non-bank personal loan very quickly. Most recently, this took one working day, now the time has been reduced to a matter of minutes. Applications are often processed automatically – 24 hours a day, 365 days a year.

• A personal loan can be obtained online, being in any locality of the country. Even where there are no bank branches or non-bank company offices. It is enough to have access to the Internet.

• You can get an online personal loan and repay it using several convenient ways. Money can be credited to a card or bank account, to a wallet of one of the electronic money systems, in the form of a money transfer, or in cash. To repay a loan, you can make a transfer from a card or an electronic wallet, deposit funds into one of the payment terminals, etc.

• In many cases, an extension of a personal loan is available if the money cannot be returned on time. Postponement may even mean suspension of interest accrual. Prolongation usually requires a special application, non-bank companies can also charge a special commission for this action.

Disadvantages Of Personal Loans

• The main disadvantage is the interest rate on the average personal loan. Interest-free loans are possible only as a promotion – most often they are given to clients who apply to this company for the first time. The reasons for the high rates are clear – the main one is the high risk of non-repayment since non-bank companies lend to clients without unnecessary checks and with a bad credit history.

• It is worth bearing in mind that the loan company issues personal loans for the amount of up to $35,000. It is usually impossible to get more from a loan company. A sufficiently large amount in the form of a personal loan is extremely rare. Getting a larger loan is real, but only for regular customers who are ready to confirm their reliability in additional ways.

• The reliability of loan companies may be lower than that of banks. There is always a risk of running into scammers who will steal money or the personal data of customers and will also be able to use various tricks. It will be difficult for an inexperienced borrower to determine how reliable this or that organization is.

Which Is Better – A Credit Card Or A Personal Loan?

There is no general answer for all borrowers and all situations. The frequency of applying for money and the main goal are important.

Credit cards are more suitable in such cases:

• Borrowed money is required periodically, and the non-cash form of the borrower is quite satisfactory.
• With the help of borrowed funds, ordinary daily purchases in a store or on the Internet are paid.
• The borrower knows how to use the grace period so as not to pay interest on the use of bank money.
• A person needs a convenient tool to pay for purchases abroad or in one of the foreign online stores.
• The card will become a reserve source of borrowed funds in case of an unforeseen situation.

A personal loan would be a better option in such situations:

• Borrowed money is needed infrequently and little by little.
• An urgent situation has arisen that requires a certain amount right now.
• Banks for one reason or another do not give credit cards.
• Borrowers are in dire need of cash.
• In the locality where the person lives, there are no or almost no offices of any banks.

One thing unites credit cards and personal loans – when applying for borrowed money, you need to be able to calculate your capabilities and plan debt repayment. Using each of these options correctly, you can resolve the financial situation that has arisen without any problems.