Credit cards and personal loans can be used for many different purposes, including paying for a new car, buying a home, travelling or consolidating debt. They both have their pros and cons, so it’s important to understand their differences in order to decide which one is best for you.
A credit card is a type of revolving debt that gives you a line of credit to spend money, then pay off that balance. This makes it a useful way to make purchases and build up your credit history, but be sure to use it wisely and pay off the balance in full every month.
If you’re looking to borrow a large sum of money, a personal loan may be a better option than a credit card. A personal loan will provide you with a lump sum of money upfront, which you’ll then repay over time in instalments, usually with interest added.
You should be aware that personal loans typically come with higher interest rates than credit cards, which can add up over time. However, you can find lower-interest options if you’re diligent about shopping around.
There are also many credit cards that offer rewards or perks, such as cash-back bonuses, travel miles or other incentives. These are often a great way to help you save or get a discount on something you already need.
When to use a credit card
A credit card is best for small purchases and consolidation of smaller debts, up to a few thousand dollars that you can comfortably repay within a year. These purchases can usually be covered by a 0% introductory APR deal.
It’s also a good idea to use credit cards for everyday purchases and emergencies, as you can withdraw cash from your card when you need it. But keep in mind that some credit card providers charge annual fees or a higher interest rate for cash advances, so it’s important to check before using your credit card for a large purchase.
When to use a personal loan
A personal loan is a type of unsecured loan that you can use to finance larger purchases, such as a new car or home renovations. It works similar to a credit card, but with a fixed amount of money upfront and you’ll repay it over time in equal instalments.
Generally speaking, personal loans are a more suitable borrowing solution than credit cards for bigger purchases and high-cost debts, as they offer longer terms than cards.
When to use a balance transfer card
A balance transfer credit card is an unsecured loan that allows you to move the balance of your existing cards to a new card with a 0% interest rate. This can be a helpful tool when you need to pay off your balance quickly, but it’s important to be careful with balance transfers as they can impact your credit score if you apply for too many cards at once.
Debt consolidation is a popular use for both credit cards and personal loans. It’s a strategy that combines multiple debts into one monthly payment and can be an effective way to save money by paying less interest. But a debt consolidation loan can have more negative impact on your credit score than a balance transfer card, so it’s important to shop around for the best loan with the lowest interest rate before making the decision.