Are Credit Cards Better than Personal Loans?
Personal loans and credit cards can both offer a way to borrow funds that you can use for almost any expense. Several of their features are very similar, but there are also some key differences. Read on.
Whether you are looking to cover the cost of a holiday, buy a new car or purchase a new fridge, having the extra funds available for both expected and unexpected expenses can be a blessing.
For many Australians, the best solutions to being short changed are between a personal loan or a credit card and both can offer you what you are looking for. There is no real clear-cut winner between the two, and like many things, it comes down to your circumstances and your preference.
When assessing which option will be better for you, the key thing to look at is how much you need. Generally, if you are after a higher amount or need the money all in one go, then you may be better off looking at a personal loan.
This information can depend on the creditor you are looking at too. Personal loans at Champion Loans can range from $200 up to $20,000 but bigger banks may be able to go higher (depending on your credit score and their lending requirements).
If you are only after a small amount at a time or a safety net each month, then a credit card might be the better option for you. Credit cards usually come with interest free periods or bonuses for using your card. If you are only planning on spending a small amount of money, this may work in your favour. However, if you are looking at spending a larger amount on a credit card, then it is important to read the fine print carefully, anything that could take months to pay back might end up costing quite a bit more, as credit card interest rates are notoriously high, especially in today’s ecological climate.
To make it easier to look at things clearly, we have listed some pros and cons for each below.
CREDIT CARDS
PROS
- Ongoing credit balance that only charges interest when funds are used.
- If kept and paid properly, possibly provide the opportunity for limit increases.
- May offer other benefits like 0% interest periods or rewards points.
CONS
- The interest might be higher than personal loans with banks or other lenders.
- If a balance is not being paid, interest and fees can create a cycle of debt that can be very difficult to get out of.
PERSONAL LOANS
PROS
- Personal loans usually have a lower interest rate to a credit card.
- Can provide faster funding for larger purchases.
- Has predetermined, fixed repayments and schedules so you are able to keep track of how much you are paying off and when you will finish your loan.
- Ability to give you the funds in one lump sum payment.
CONS
- Generally, does not provide more finance after repayments are finished unless you re-apply or have a re-draw option in your contract.
- Does not offer any rewards.
- If a balance is not being paid, interest and fees can add up and create more debt that can be difficult to get out of.
In certain situations, both credit cards and personal loans may require the use of a vehicle as security. This may be something else that you haven’t thought of.
In the end, it is important that you make sure you read and understand the terms and conditions for whichever option you go with and ensuring you are in a financial position to pay them back is the most important thing to consider when making this decision.
If you have any questions about taking out a personal loan with our loan lending company, please contact Champion Loans. Alternatively, if you're ready to apply, you can < Return