Choosing Credit Cards over Personal Loans: What you need to Know
Many consumers use credit cards as a way to secure money for a wide variety of things, from home improvements to cars. Given the low interest rates and attractive terms offered by many credit card companies, particularly for individuals with prime credit, it is no wonder that many people turn to credit cards instead of personal loans.
However, is credit card debt really the same as a personal loan? For many individuals, attractive balance transfer offers lure them into using a credit card, while many personal loans carry a much higher interest rate than many credit cards.
However, with the good comes the not-so-good – and that goes for credit cards, too.
There are a number of reasons why credit cards are much different than personal loans:
- Your monthly payment will vary – Many consumers choose personal loans over credit cards because the monthly payment is fixed. However, for individuals with responsible credit management, the difference in monthly payments for credit cards is quite manageable. If you are looking for a fixed payment that you can come to expect during the life of the loan then a personal loan is probably better for you.
- Your interest rate may vary – Unlike personal loans that typically feature fixed interest rates over the life of the loan, credit cards may have changing interest rates, which then may affect your monthly payment and the amount of interest you pay on your loan. For example, although you may secure a credit card at an attractive 0% interest rate, this rate will likely expire and then you will be left with a credit card balance that features a much higher interest rate.
- You won’t have a clear payoff date – Unlike personal loans, which have a set repayment period, your repayment period for a credit card may vary greatly, depending on the interest rate being charged by the credit card company and the monthly payment you make. Because of this, credit card loans often turn into long-term loans that take much longer to pay off than traditional personal loans. It is therefore important to come up with a reasonable game plan for the repayment of your credit card and stick to it.
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