When Loans are Better Than Credit Cards

When Loans are Better Than Credit Cards

I know you’ve been getting these promotional emails about loans and credit cards which of course I very well know you don’t open. Maybe you have also seen these loan advertisements on TV, SMS, and media channels.

If you need some cash lending, you may be confused about which loan type is better than the other.

Ooh my! This is a big dilemma.

Don’t worry. This is the perfect article for this case.

What to Choose Between Credit Cards and Loans

Credit cards and loans are both advantageous. But one can be more appropriate depending on the situation you are in. These situations include:

  1. Application Process

Loans need to be applied every time you want them. It’s possible to be rejected sometimes if you don’t meet the set requirements. Also, if you have an outstanding loan balance, you cannot be approved for another until the latter debt is paid.

 Credit cards on the other hand do not need constant application. If you apply once, that’s it. You’ll only be paying interest on outstanding balances that weren’t paid off in time. This is one of the reasons why credit card balances increased last year.

According to CNBC news, about 51 million people have added to their credit card balances since March 2020.

You can also opt for online payday loans which have a fast application process but be aware of the high interest. Credit cards have lower interest rates compared to payday loans hence making them a better option.

  1. Interest Rates Amounts

Credit cards normally have high-interest rates compared to personal loans. Hence if you are keen on interest rates, consider choosing the personal loan option from a lender with low rates. This of course depends on your credit score and availability of security.

However, since many credit card companies offer 0% introductory APR rates on balance transfers and new cards, it’s possible to avoid credit card interest by paying your card debts on time.

APR (Annual Percentage Rate) is simply the cost of borrowing money. “If you have a 20% credit card APR, that is the interest you’ll be paying. But if you carry the debt to the next month or whatever due date you had, you’ll be paying interest over an interest,” urges Beverly Herzog, a credit card expert from Invest Diva show by Kana Daniel.

Something to note is that both debts have late payment fees which can increase their rates.

  1. The Amount You Need to Borrow

If you need smaller amounts, a credit card will be the best option since they are faster to pay off. But if the amount to be borrowed is large, it’s better to take a bank loan which in this case should be a personal loan due to the low interest offered.

It’s also possible to borrow small amounts from payday loan lenders. To do this, browse for the top 10 no credit check online payday loans to get the best deals.

If you are planning to repay the loan in a few months or years, take a personal loan. The long repayment period means lower interest which is fixed.

  1. Type of Interest Offered

Many loans have fixed interest, therefore it’s easy to calculate interest to be charged and plan for it.

On the other hand, many credit cards have variable interests. This makes it difficult to plan on the repayments since the exact interest to be added is not known.

If you are the kind of person who loves planning and following a budget, go for the loans.

  1. Money Spending Habits

Are you the type of person who is easily tempted to impulse buy? If so, don’t take a credit card. Since credit cards have no constant application, they provide continuing access to the funds.

Hence, if you like spending money, credit cards can tempt you to continue using the balances leaving you in a debt cycle.

Conclusion

When deciding on which option to choose between a credit card and a loan, look at what situation you are in and choose the best option that closely fits the situation.

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