Which Is Better-Personal Loans Or Credit Cards?

May 31st, 2010

Both credit card and personal loans have their rightful place. Read this article to find out which one is better.

2.9% p.a. for 12 months

A lot of people have been wondering whether a credit card or a personal loan is the best one to choose. There is really no right or wrong answer since it all depends on what the money is being borrowed for. Both credit cards and personal loans have their place, and you should consider the points listed below before making any type of financial commitment.

The difference between a credit card and a personal loan

You will have a revolving line of credit when you have a credit card and you will be given a credit limit to work with. You will be able to borrow the amount you want up to the limit provided. You will not have a monthly repayment that is fixed, instead you will be given a minimum payment amount on your monthly statement. You can choose how much money you would like to take off your balance each month as long as you fulfill the minimum monthly requirement. The balance will also reflect any interest charges that have been applied.

With a personal loan, you will have to make fixed monthly payments. The loan will have a fixed interest rate and you will have a set number of months or years to pay it back. There will be a contract to sign and you must agree to make fixed installments over the time period you have chosen.

Both credit cards and personal loans can be considered unsecured borrowing. If you default on your payments, the bank is not able to take your home.

Making the decision

The main consideration that should be analyzed when you are trying to choose between a credit card or a personal loan is how long it is going to take to repay the borrowed amount. If you believe that it will take less than a year, you may be better off choosing a credit card. You simply need to look for a low interest rate card that offers the rate for at least a year. While you are repaying the debt, you won’t have to worry about high interest being added on.

This will not work out if you are not able to pay off the debt within the promotional time period, since after it has expired the standard rate of interest will be applied. In that case, a personal loan would be in your best interests. You will be able to fix your rate of interest at the beginning and you will have the secure knowledge that your interest charges will not rise.

Another thing to look at is how well you pay off your debts. If you have trouble sticking to a budget, for instance, you may want to choose a credit card since you are offered more flexibility. As long as the minimum payment is fulfilled on a monthly basis, you can decide how much you will pay when your statement arrives. If you’re well disciplined and can meet your monthly obligations then a personal loan would work fine for you.

Both a credit card and personal loan offer great benefits. If you’re looking for more flexibility and think that you can pay off the debt within a year, then a credit card may be your best choice. Consider all the factors above to help you make the wisest decision.

Editors Choice: Featured Credit Card Deals

	Interest Rate (p.a.)	Balance Transfer Rate (p.a.)	Annual fee	Cash Advance Rate (p.a.)
Westpac 55 Day Credit Card	0% for 5 months (reverts to 19.59% )	3.99% for 6 months	$0	21.49%
Citibank Clear Platinum Card	11.99%	2.9% for 12 months	$99	21.74%