|Unsecured Loan||Credit Card|
|Fixed loan dispensed once||Revolving debt|
|Fixed monthly payment||Monthly payment can increase depending on spending|
|Fixed limit on loan to receive usually not more than $100000||Has a large limit that keeps growing|
|Fixed Interest rate on monthly payment||Interest rate grows with each spending|
Unsecured loans or credit cards can be good options when you need quick cash for an emergency, a project or quick purchase. You get money easily and fast with easy application and processing time. You should select one depending on your need which isn’t an easy undertaking. Both have their benefits and risks, which you should take into consideration before opting for any. The best unsecured loans give you more time to pay back the loan which is not the case for credit cards. But the most important point to note is the interest rate charged.
The best option between a personal loan and a credit card is the one with the lowest interest rate. This means you must do your research and shop around different companies before deciding the one that fits you. Don’t just walk to any lender or accept to register for any credit card before you do your research. While a personal loan is fixed and the monthly payments are set from the start, this is not the same case for a credit card. Credit cards are revolving debt that depends on how much you spend and the amount you pay back every passing month hence the lack of a fixed amount.
An unsecured loan is simple to process when you have a good credit score. Interest rates today vary depending on the lender and how much you want to borrow. Due to there being many lenders, the rates are quite competitive and you can get a lender offering the amount you need at a good interest rate. A personal loan becomes a better option when you need a certain amount of money and no more. With a credit card, the amount varies depending on what you spend it on making the interest charged higher than that of an unsecured loan.
With a good credit score, you can have a personal loan processed in a matter of hours and use that lump sum amount for the emergency or project at hand. A credit card is used to make purchases over a period and how much you pay back depends on what you buy with it. You might end up paying more with a high bill at the end of the month if you don’t keep track of your purchases. This makes the monthly payment of such a card higher than when you borrow a fixed loan with fixed monthly payments.
A personal loan has more time to pay back. You can get one that allows you up to 10 years to complete payments. This type of loan requires no collateral provided to secure, only a good credit score as per the lender’s requirement. You can use this loan to consolidate your debt which is a good decision when you get one with a lower interest rate charged. Still, this doesn’t make them the best option among the two. Both have their benefits and risks so keep that in mind when opting for either one.
A credit card is good for making purchases anywhere at any time. This can be at a physical store or online from the comfort of your home. It can be a good way of making daily purchases for your home then you pay the total at the end of the month to the credit card company. The problem with credit cards is they have such a large limit. If you don’t keep an eye on your monthly purchases, you might end up with a huge bill at the end of the month. This comes with a huge interest rate charged as well.
You don’t need to pay this large sum all at once which is why credit cards are regarded as revolving debt. This is both good news and bad news. Just because you’re not required to pay it all back at once doesn’t mean you don’t have to pay it back at all. The monthly payments you make are a good option but remember the interest is still accumulating on the amount you owe. The interest charged on your card is determined by the credit card company and can be high making the total amount you pay back high as well.
The limit of your card depends on the monthly payments you make and how much you spend. Often, the limit you start with when issued with the card grows over time. With a personal loan, you get one lump sum amount with a fixed interest rate charged on it. The monthly payments are determined from the start when issued with the loan. This makes the personal loan not a type of revolving debt like a credit card.
Unsecured Loan vs. Credit Cards
The two are types of debts. Therefore, you must decide whether you need the added debt or can do without it. You’re required to pay both of them back in full with interest. For the unsecured loan, the interest rate charged is much lower than that charged on the credit card. The personal loan comes as one lump sum given to tackle an emergency or a project. You use a credit card to make purchases. The amount accumulates to a certain total at the end of the month. How much you owe the credit card company depends on the purchases made on that month.
To get a credit card is quite easy and often doesn’t require a high credit score. For a personal loan, a high credit score is required because the loan is not secured. You can pay back a personal loan for a period of 10 years giving you ample time to complete. Credit cards require you to pay back the balance you owe as quickly as possible. Take a credit card when you’re sure you can make fast repayments over the period given. This time is less than that of a personal loan.
Credit cards are risky and you can find yourself knee-deep in debt within a short time. This is because of the interest rate charged (APR) by the company issuing the card. Additional fees are a factor to consider as they can make the total amount payable higher than expected.
Personal loans have origination fees charged for processing it. Credit cards have fees paid at the end of each year. They as well charge for late payment and fees charged when you surpass the limit of your card. Getting cash from a credit card incurs more fees like cash advance which only increases the amount you owe. The good thing with a personal loan is you have fewer extra fees charged which make the amount to pay back less and more fixed than that on credit cards. However, you will as well not be spared if you are unable to make loan repayments.
A credit card and a personal loan are still types of debt. Think through whether you need them first before opting for any. For cash, a personal loan is better. Getting cash from a credit card incurs more fees charged on top of what you owe. Personal loans offer longer durations to pay back and charge lower interest rates. For credit cards, you must pay them off as quickly as possible to avoid higher interest rates charged on what you owe.