It can be tempting to ring up a major purchase or expense on your credit card without thinking twice, but depending on the situation, it may make more sense to apply for a personal loan. By reviewing your short-term and long-term financial needs, you can make an informed decision that won’t bog down your credit.
Comparing Interest Rates
A lot of factors should be considered when comparing personal loans and credit cards. Perhaps the most important one is interest rate. Interest rates can vary drastically for both loans and credit cards. When applying for either one, you’ll be given an annual percentage rate (APR) to help understand the full cost of your decision. The APR not only includes the interest rate, but also incorporates most fees. For major purchases, you may often find a lower interest rate with a personal loan.
Why Repayment Terms Matter
The length of repayment is also important to be considered. Even if the monthly payments are lower on one option, the length of time it takes you to repay may result in more interest paid overall. If you know you can pay down your borrowed amount quickly, you could find a credit card with a 0% introductory APR. If you know it will take time to pay down your loan amount, consider looking for a loan with a lower interest rate over an extended period of time.
Also remember that loans have a set payment schedule, while credit cards simply require a minimum payment each month. While this may sound like a good thing, it could actually end up costing you a significant amount of money in extra interest over a long period of time. If you have trouble with self control and making payments beyond the required minimum, try a personal loan.