Originally posted on https://bonsaifinance.com/personal-loans-vs-credit-card-loans-lc/
When it comes to money matters it is important to weigh the pros and cons. Having an immediate need for cash can cause some to make a rushed decision they may later regret.
The time to plan for a big purchase or a financial emergency is now.
Two options that consumers have for getting quick cash is personal loans or using a credit card. Both options provide a viable solution, but which is best suited for your situation.
Interest rates will be a key factor when utilizing credit cards or taking out a loan. You will also need to consider the time needed to repay the loan.
If you are in need of a loan, continue reading to see which option may be best for you.
What is a Credit Card Loan?
A credit card loan is what you take-out every time you use your credit card to make a purchase. Your predetermined line of credit is the maximum amount of your loan.
If you are in good standing with your credit card issuer they may increase your limit upon request.
There are times when a credit card holder may be in need of cash. For those times he can withdraw the available balance from the credit card. These are cash advances.
There are three ways to get cash off of your credit card as personal loans to yourself. Some card companies will issue you a check. Other methods include making a withdrawal off the card at a local bank or using a PIN at an ATM.
In most cases, credit card PINs are not issued automatically. The cardholder must request a PIN. It can take up to 10 days to arrive by mail.
The downside to cash advances is that they often come at a higher interest rate. Extra fees are often assessed for each withdrawal. You may also have set limits on the amount you can withdraw for cash advances.
What are Personal Loans?
Personal loans are loans, in which you borrow from a lender and repayment is in predetermined monthly installments.
This type of loan can be more beneficial to someone who is in need of cash not available on a credit card. Or someone with cash advance limits. Depending on the lender, borrowers can access upwards of $50,000.
An important factor to consider, loans are for a set amount that you pay down over time. The available credit increases each time a payment posts to your credit card balance.
Credit cards can perpetuate an endless cycle because they are a revolving debt. A personal loan has a fixed debt. As long as you make your payments on time, the balance owed will decrease.
Both can be Unsecured Debt
Unlike a car loan or a mortgage, both credit card and personal loans are unsecured debt. This means you do not use collateral to secure the debt. The amount of credit extended to you is generally based on your ability to repay.
You will need to verify your income through an employer or tax records for those who are self-employed.
If you are unable to repay, your vehicle can’t be repossessed, or your home foreclosed on. However, lenders can pursue legal means for repayment, including wage garnishments. So it is important to make timely payments.
Credit card issuers and personal loan lenders report to credit reporting agency. Use the credit extended to you to rebuild or boost your credit score.
One way to better manage debt or eliminate it altogether is through debt consolidation.
With a credit card, you’re limited in what you do. Some companies offer the opportunity to transfer balances from other credit cards.
The benefit of doing this is to receive a better interest rate. It also allows you to reduce the number of monthly credit card bills you are paying.
The downside is you can only transfer credit card debt. Transferring balances from department store credit cards are usually not allowed.
With personal loans the goal is similar. You are reducing the number of outstanding bills. Having one manageable monthly payment can reduce your financial stress a great deal.
The plus for using a personal loan to consolidate debt is that you can pay-off any type of debt.
Regardless of which method you choose, it’s recommended that you close the accounts you pay-off. One mistake people make is keeping accounts open and over time creating new balances.
People with Bad Credit Can Secure Credit
There was a time in the past where it was virtually impossible for someone with bad credit to secure new credit. Things have changed in significant ways.
Today more lenders are willing to work with people who have had credit challenges in the past.
Unfortunately, some credit options often come with higher interest rates. You may also have a cap that limits how much you can borrow. Still, this is an opportunity to rebuild your credit and secure lower rates.
The safest way to go is with personal loans. Your loan will be structured to give you preferred rates and term limits to fit your income level.
How Much Money Do You Need?
Now that you know the difference between a credit card loan and a personal loan, let’s discuss how much money you actually need.
When looking to gain access to less than $1,000 for a purchase, utilizing a credit card may be your best choice. For a cash advance on a credit card, the safe number is no more than $500.
Personal loans will be much easier to manage for higher amounts. Again, the structured loan will be easier to manage. Set monthly payments and a pay-off date makes repaying the loan less complicated.
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Financial decisions give us a lot to think about. We hope that the information provided will help you choose an option best suited for your budget.
If you are seeking extra information Bonsai Financial is here to help
We specialize in personal loans, online loans, and secured credit cards. For more information contact us today.