Why a personal loan is better than a credit card
–From an emergency surgery to consolidating all existing debts, there are many reasons why you may have to borrow money. Two viable options are a credit card and a personal loan. This article will detail the reasons for selecting the latter.
However, before delving into why a personal loan is better — and to offer a balanced viewpoint — here are some advantages of a credit card according to investopedia.com:
- It’s a better option for those who only need to borrow small amounts
- Not sure about how much money you need to lend? Credit cards offer added flexibility
- Select credit cards boast added perks such as cashback and reward points
- If anything goes wrong with a purchase, the credit card company will likely step in and sort any issues
- Credit cards are a convenient backup for all kinds of emergencies
Now that the positives of using a credit card have been highlighted, it’s time to breakdown why a personal loan works better in certain situations.
You Can Borrow a Larger Amount of Money
In general, you will be allowed to borrow a much bigger sum of money with a loan compared to the typical credit card. This is ideal if you require the cash to make a sizeable purchase, whether it’s for a new car or the beginning stages of a business venture.
Interest Rates Are More Appealing
As it is a set sum which is normally larger than the maximum limit of a new credit card, the interest rate is, naturally, more appealing when it comes to a standard loan. Additionally, if you use a platform like Cash Lady Loans, it is easy to maximize your loan and get the best deal in terms of repayments.
In some cases, however, a credit card will provide the best deal in terms of interest. This is because select credit card providers entice people with an initial interest-free period. This means that, for a set period of time when you first receive the card, there is 0% added to any purchases. Although once that period is over, you will be paying regular interest — not great if you have already incurred debt, which will ultimately not benefit from that 0% rate.
They Don’t Allow You to Keep Dipping into the Pot
This might actually seem like a negative initially. However, once you receive your loan, that’s it. Unless you refinance your loan, there’s no opportunity to keep topping up the amount of cash you borrow.
A credit card is a different story. You could, for example, take out an initial $1,000. While you might pay back $500 to cut this amount in half, you could also withdraw that $500 again at a later date, leaving you back at square one.
That’s not the case with a loan. You have an agreed amount to pay on a set schedule, repaying the loan — and accompanying interest — until the debt is paid off in full. It’s less exciting in a way, but it instills discipline. Plus, for those who struggle to manage their finances, the temptation to keep dipping into the pot isn’t available like it is with a credit card.