When you find yourself in a position where you need to borrow money, it can be slightly overwhelming due to the fact that there are simply so many options available to you. However, at the core of them all you’ll find two major leading types; personal loans and credit cards.
While there are many differences between the two, it can be hard to know which leading method is best for you, depending on the situation you’ve found yourself in. Today, we’re going to explore the ins and outs of each leading method, so you can figure out easily which one is the best for to you.
How Do Credit Cards Work?
Credit cards are renowned for being the most expensive form of leading credit out there. Typically, you’re going to find the interest rates for these are in double digits unless you’re able to find yourself a really good deal.
You’ll also be expected to pay a minimum monthly repayment fee to pay off your loan. Failure to make this repayment can seriously affect your credit rating. With this in mind, credit cards are usually reserved for smaller purchases; perhaps $1,000 or less.
This way, you’ll be able to keep on top of the monthly payments, and you won’t have to pay as much in interest because you’ll only have taken out a small amount of money. However, credit cards are good to have laying around in case you need to access money whenever you need it.
For example, if your car breaks down or you find yourself facing an unexpected payment, you can simply resort to your credit card, and then pay it off gradually over the coming months.
How Do Personal Loans Work?
There are lots of different types of personal loan you may consider taking out, so be sure to research which one you’re going for. For example, you may be taking one out from your bank, or you could use a third-party service, such as King of Kash.
There are also types of personal loans, such as secured and unsecured, which means you’ll be using an asset as collateral against your loan. This is because personal loans tend to be bigger than what you would use a credit card for.
The monthly repayments are also considered flexible, and the interest rates tend to be lower. This is because the repayment terms, while they can vary, tend to last between one and five years. This is unlike a credit card which is expected to be paid off as soon as possible.
If you’re planning on buying something substantial (although you can use the sum for smaller purchases), you’ll be expected to pay this off over a longer period of time. You’ll also receive all the money you’re looking to borrow in a lump sum into your bank account.
Summary
When it comes to borrowing money, both a personal loan and a credit card have their pros and cons. However, if you’re looking for a smaller quick amount of credit, a credit card could be ideal. If you’re looking for money over a longer period of time that’s more affordable, a personal loan would be better suited to you.