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Loans vs Credit Cards

If you are looking to borrow money, then you may be wondering how to choose between taking out a personal loan and applying for a credit card. They both work in different ways and can help you to get the funds you might need now. We explore the pros and cons of each to help you choose what is right for you.

Loans and credit cards offer two different options for you to borrow money, but which is more suitable for your situation?

Loans and credit cards are types of credit offered by lenders where you have to repay the sum borrowed with interest. There are advantages to both options, as choosing one or even both could potentially boost your financial status. We take a close look at the facts to help you compare the two and make the best decision for your situation

 

What is a credit card?

A credit card is a type of flexible loan from a card lender, often used to pay for purchases where you may not have the available cash ready. You receive credit from a lender, which you can then spend using their card. The lender will add interest to the amount borrowed and unless you clear the balance, you will be required to pay the minimum amount each month.

 

Pros of credit card

 

Cons of credit card

 

What is a personal loan?

A personal loan is the short term borrowing of a fixed amount of money from a bank or other lender, at a fixed rate of interest over a fixed term. It is often used to finance a new vehicle or house renovation or consolidate debt or any number of other reasons. You receive your loan in one lump sum, which you will then pay back in regular monthly instalments.

 

Pros of a personal loan

 

Cons of a personal loan

 

Which is better - loan or credit card?

If you are looking to borrow a small amount of money, and can cover the balance in full each month, then a credit card with an inviting 0% introductory rate could suit your situation. For larger amounts, a personal loan with lower interest rates and fixed terms would fit the bill. However, unless used wisely the credit card comes with more risks, especially if you find yourself just paying the minimum each month, whereas the straightforward fixed terms of a personal loan provide simple peace of mind with a steady monthly payment.

Depending on your circumstances, and how you manage your money, there may be a type of borrowing that is more suitable for you. It is always best to do your research, compare the options and take a look at what is on offer before you decide to go forward with an application.


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