When it comes to the instant need of funds, gone are the days when people actually used to rely on their friends or relatives. Nowadays, it’s just you and a loan app on your internet-enabled smartphone. For example, around two months ago, I was planning to renovate my house and was in need of some urgent funds.
Instead of travelling to any bank or financial institution, I was able to avail the same while sitting at my home only. This is what digital technology development has been able to do till date, making everything much easier and smoother.
Credit cards and personal loans are two popular financial tools that individuals can use to meet their monetary needs. While both options offer access to funds, they differ significantly in terms of their structure, features, and repayment methods.
Credit cards are revolving lines of credit that allow users to make purchases up to a certain credit limit. They offer convenience and flexibility, as users can make partial payments or choose to pay the minimum amount due each month. Credit cards often come with rewards programs, such as cashback or travel points, providing additional incentives for usage. However, credit cards generally have higher interest rates, and if the balance is not paid in full, the interest charges can accumulate over time, leading to debt accumulation.
On the other hand, personal loans provide a lump sum of money borrowed from a financial institution or lender. They typically have fixed interest rates and set repayment terms, allowing borrowers to budget their payments accordingly. Personal loans are suitable for large expenses like home renovations or debt consolidation, as they offer structured repayment plans and lower interest rates compared to credit cards. Additionally, personal loans do not have revolving credit lines, meaning once the loan is repaid, the borrowing capacity does not replenish automatically.
When deciding between a credit card and a personal loan, several factors should be considered. If the financial need is relatively small and short-term, a credit card may be a convenient option. However, if a larger sum is required or a longer repayment period is desired, a personal loan might be more appropriate, providing stability and potentially saving money on interest payments.
It is essential to consider personal financial circumstances, such as credit score, income stability, and existing debts, when choosing between these two options. Responsible usage of credit cards or personal loans can help build credit history, but it’s crucial to manage debts carefully to avoid falling into a cycle of high-interest debt. Seeking professional financial advice and comparing interest rates and terms from different lenders is recommended to make an informed decision based on individual needs and preferences.
What is a personal loan?
It is an amount of money you can borrow to use for a variety of purposes. For example, you may use this loan to consolidate debt, pay for home renovations, or even plan a dream vacation or dream wedding.
Usually offered by banks, credit unions, and online lenders, the amount here must be repaid over time, typically with interest. However, there are certain applications that offer the same without charging any kind of interest amount.
Credit Card Loans Vs Personal Loans? Which is better?
It totally depends on the specific financial needs, borrowing capacity as well as repayment preferences of the borrower. However, here are a few factors to consider when comparing the two:
- Rate of interest
Generally, an instant personal loan has a lower rate of interest compared to the ones offered by credit card loans. However, credit card loans often have higher interest rates, especially if you only pay the minimum amount due.
- Amount of loan
Personal loans typically allow the borrower to avail a large sum of money compared to credit card loans. Therefore, a loan for personal use might be more suitable if you need just a substantial amount.
- Repayment period
Credit card loans are usually revolving credit, meaning one can continuously borrow and repay but within the credit limit. However, personal loans have fixed repayment periods ranging from a few months to several years. So, if you, as a borrower, prefer a structured repayment plan, a loan for personal use might be a better choice.
- Flexible
Credit cards offer flexibility in terms of borrowing, as you can use your credit limit for multiple purchases and expenses. However, this can lead to the accumulation of high-interest debt if not managed in a proper manner.
- Credit Score Impact
Both credit card loans and personal loans can affect your credit score. However, maxing out your credit card or carrying a high balance can negatively impact your credit utilization ratio and credit score as well.
How to avail a personal loan?
Availing this loan type nowadays is super easy. You just need to download the right application, and you are good to go. I used an application called ‘Stashfin’, and believe me; this is the only application that offers interest-free loans. This means you don’t have to pay any interest amount above your loan amount back to the lender.
- Download the app from the Play Store/App Store
- Sign up using your mobile number
- Add your personal details to check your credit limit
- Complete KYC and you are good to go!
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