Credit cards are useful for all sorts of things, and if your limit is high enough, they can be used to encompass some pretty sizable purchases.
Of course there are other ways to afford big ticket items, whether that’s a car, an overseas vacation, or anything else that grabs your attention. Taking out a personal loan is one of them, so what are the advantages and downsides involved?
A personal loan will usually have a lower APR
Personal loans typically have more amenable rates of interest attached to them than credit cards. The main reason for this is that they have a fixed repayment structure, and an endpoint at which a lender will know that a borrower will have fulfilled their obligations to them.
Meanwhile credit card deals may have a minimum monthly repayment to meet, but no obligation to clear the balance completely in any particular time frame.
Of course if you have a good credit rating, and you shop around for a competitive credit card package, you should be able to achieve a decent APR.
On the other hand, if your credit history is patchy, a personal loan will be more affordable. You can also find SoFi debt consolidation loans, which could be used to pay off high-interest credit card debt, and save you from steep repayments that way as well.
A credit card is great if you intend to repay it quickly
The problem with using a personal loan for a big purchase is that you’ll need to go through an extensive application and approval process.
On the other hand, if you pay by credit card, you’ll be able to buy what you want immediately, so long as you’ve got enough credit left on your account.
This speed and ease of use is appealing, and even if the rate of interest is high, it might not matter if you’re planning to pay down the balance as soon as possible.
For example, if you want to buy something expensive right now, and then pay off your credit card when the next payday rolls around, this could be the simplest option.
A personal loan is ideal for very large financial commitments
Generally speaking, if the amount of money you are planning to part with for a purchase is more than a couple thousand dollars, it’s rarely the right move to make the payment via your credit card, particularly if you don’t see yourself being able to repay everything any time soon.
Personal loans are built with big purchases in mind, and can be spaced out over as long as you need to make the repayments affordable. So whether you want a package that will be paid off in 12 months, 3 years or even longer, and you’re looking at a four, five or six figure purchase price, a personal loan will suit your needs.
A credit card won’t charge you for early repayment
Speaking of repayment terms, it’s worth noting that in addition to being quick and convenient, credit cards also don’t have the same strict terms and conditions with regards to when you need to make repayments, or how much you put back. So long as you’re covering the interest with minimum repayments each month, you can keep your debt indefinitely.
More likely, you’ll want to pay it off sooner rather than later. With a personal loan, you may be charged extra for early repayment. With a credit card, there’s no such concern.
In short, there’s a right and wrong time for credit cards and personal loans, and you have to examine your own requirements rather than relying on a generic answer.