Credit Cards vs Personal Loans

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Comparing using Credit Cards vs Personal Loans

*The content in this post if for informational purposes only and does not constitute professional advice and shouldn’t be taken as such.

Should I use a credit card or a personal loan to pay for a purchase and what are the pros and cons of credit cards vs personal loans? We’ve received this question in the past and our answer may surprise you. We would say NEITHER. We know a lot of people like using credit cards or personal loans to finance certain purchases, but if you’re able to save up and pay for something in cash, you’ll probably end up much better off if you don’t use a credit card or a personal loan to finance an item. A second question you should ask is “Do I really need to make this purchase in the first place?”.

We know that we offer credit cards and personal loan offers on our website, but we always encourage responsible financial decisions, so whether you need to finance a purchase at all is a very important question to ask before you ask whether you should use a credit card or a personal loan. Assuming you have done this and have decided that you want to finance an item with either a credit card or a personal loan, lets look at some of the differences of a credit card vs a personal loan and examine some pros and cons of credit cards and personal loans.

We certainly would never recommend that anyone make a LARGE purchase with a credit card, as credit card interest rates can run very high, but so can SOME personal loans, depending on the personal loan that you’re approved for and the interest rate assigned to that particular personal loan. We say this with the understanding that what’s considered a LARGE purchase varies from persona to person, depending on their income and other factors. For the sake of the conversation, let’s discuss the hypothetical difference of using a credit card vs personal loan for making a $1,000 purchase. Although some companies will write personal loans for as little as $500.00, most personal loan providers start at $1,000.

Credit Card vs Personal Loan

Credit cards may be easier to get approved for, may have more flexible payment options such as only making the minimum monthly payment for a period of time, and may have rewards such as airline miles when you make a purchase. This may sound appealing for some, but on the other hand, credit cards also typically have interest rates, don’t have a fixed payment schedule which can lead undisciplined borrowers to not pay off off for a long time, and may have revolving balances which also may lead undisciplined borrowers to use more than the $1,000 that’s needed for the purchase. Credit cards typically can cause more problems for borrowers, but that’s not always the case.

Personal loans on the other hand typically may have lower interest rates, but not always! Personal loans also typically offer fixed monthly payments for a set period of time which may help an undisciplined borrower pay the $1,000 off sooner. There are many other things that one should consider when comparing credit cards vs personal loans, but these are just a few. If you were considering making a purchase with a credit card or a personal loan, we’d recommend making a list of the pros and cons before applying for a credit card or personal loan, but again, the best thing to do would probably be to ask yourself if you really need the item or event that you’re purchasing for $1,000. If you can wait and just save up the money to pay for the $1,000 item or even in cash, you may be better off than if you use a credit card or a personal loan to pay for something.

*The content in this post if for informational purposes only and does not constitute professional advice and shouldn’t be taken as such.