You’ve probably heard that loans are a better choice than credit cards, but have you ever wondered why this is so? Most experts are of the opinion that loans are a better choice, which isn’t to say you shouldn’t apply for a credit card for emergencies, but more so that if you’re going to borrow a large amount, you should source a competitive personal loan.
There are, however, a number of factors that you must first take into account when applying for loans and failure to take these factors into account could see you repaying just as much as if you had applied for a credit card instead.
However, as will be discussed here, there are actually times when you may find it more advantageous to use your credit card than apply for a personal loan.
When loans are more competitive than credit cards
Loans are more competitive than credit cards because interest rates are more competitive. There are generally two types of personal loans to look at, secured and unsecured, with the former offering more competitive interest rates than the latter because collateral has been put down.
When borrowing large amounts, loans will always be the better choice. This isn’t only due to more competitive interest rates, but also the fact that interest rates for loans are generally set for the entirety of the repayment period which means that repayments remain constant and are therefore easier to budget for.
This can make a significant difference to your quality of life when repaying what you’ve borrowed and that isn’t to be overlooked.
By opting for a loan rather than a credit card, you can better plan your repayments because you needn’t worry about your repayments increasing, as can be the case with credit cards, especially when you’re unable to get on top of your debt and the amount owing increases monthly.
When to use a credit card?
If you don’t already have a credit card for emergencies you’ll find that there are times in which it proves more advantageous to apply for a credit card than a loan.
If you’re going to apply for a credit card, shop around to find one offering a 0% interest rate on balance transfers and new purchases. These cards enable you to repay free of charge, and just as importantly on your own terms, over the short term.
Generally the best time to use a credit card is to make small purchases or borrow small amounts and you’re sure that you’re able to clear your debt quickly.
Preparing for emergencies
As mentioned above, credit cards are useful to have on hand in times of emergencies, as is applying for a payday loan, and many people are well aware how stressful it can be not to have access to credit or finance during such times.
It’s for this reason that many experts are of the opinion that it’s wise to have a credit card on hand, but you must be disciplined and not use it unless the situation demands it. Otherwise you will habitually get yourself into debt and you will never be able to set aside something for a comfortable future.
When borrowing large amounts, personal loans will always be the more astute choice over credit cards for a number of reasons. There are, however, times in which credit cards will prove to the better option, though this usually only concerns borrowing small amounts, making small purchases and for emergencies.
Whatever financial products you apply for, however, it is imperative that you consider all your available options and do your research before applying.