There is definitely more than a handful of questions that come to mind when discerning the differences between personal loans and credit cards. What are the long-term implications of getting a personal loan? Am I ready and responsible enough to handle a credit card? Read on and consider this your introduction to knowing which one can work best for your current financial situation.
Personal Loans
The application process is a common denominator between personal loans and credit cards. However, personal loans can be a tedious undertaking. Expect banks to thoroughly evaluate both your fiscal situation and credit score for application approval. Personal loans are more suitable for significant spending endeavors such as starting businesses.
Once you’re approved, the bank will lend you an agreed-upon lump sum amount. Then, you will have to fulfill equal payments over a certain period, usually between two to five years. These consecutive installments are meant to cover both the principal and the interest.
Advantages
Personal loans generally offer lower interest rates than their credit card counterparts. Read: they become the better option if you anticipate that paying the balance of your debt in full each month isn’t fully feasible. After all, the last thing you need is a bad credit report which may hurt you in the future.
Disadvantages
Personal loans demand good credit standing from its would-be borrowers. So, going into the personal loan application, you must have a pretty solid budget plan on how to eventually slash your debt. Defaulting payment at any point can only multiply your financial woes for the worse. Should a bank approve your application despite your poor credit standing, expect them to impose stricter payment schemes. Moreover, you can additionally incur penalties for early loan payment.
Credit Cards
Banks tend to become more lenient towards credit card applicants. Unlike personal loans, it is generally easier to obtain multiple lines of credit. Unsurprisingly, your inability to unsuccessfully pay the full credit card bill will result to debt.
Advantages
There’s great convenience that comes via paying with plastic: accessible line of credit, anywhere and anytime. But, that’s if you don’t carve a debt through religious payments. An attractive come-on from you can maximize is low-to-zero interest rate policy banks issue during the first year of credit card use.
Most credit providers work with many well-renowned merchants. With these business relationships in place, would-be credit card holders can choose deals to suit their lifestyle. Spending incentives—include cashback, rebates, special promos, loyalty points, air miles, and more—can serve credit card holders in more ways than one. To a certain measure, you can earn your money back.
Disadvantages
The convenience of swiping cards can lead to unmanaged expenses. In addition, credit cards have higher interest rates each payment period you fail to pay the full amount. To remedy this, most credit card users find themselves pulling all stops like using apps found in https://www.overdraftapps.com/ or other similar tools just to monitor their credit standing.
