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Credit Cards VS Personal Loans

credit card personal loan imageLet’s face it – personal credit is a means to an end, right? In an ideal world, we’d be afforded the time to save to reach all our goals in life. The reality is, sometimes we need access to credit when life won’t wait.

So what’s the better choice? A Credit Card or a Personal Loan?

When looking for access to credit, we usually look for three things – fees, rates and flexibility. Beyond this, it’s as simple as assessing the time-frame for our financial goal. Simple.

When to consider a Personal Loan

  • A Personal Loan is perfect for larger expenses, usually above $5,000. Think buying a car, paying for a wedding or holiday, or consolidating some debt.
  • A Personal Loan can be secured against a possession, like a car, or unsecured. If you opt for secured, your lender can repossess the security if you’re unable to meet your commitment.
  • When you apply for a Personal Loan and are approved, the whole requested amount is deposited into your account.
  • Generally speaking, a Personal Loan has a lower interest rate than a credit card, although they may come with an application fee (usually added to the loan amount), early repayment fees or monthly fees, depending on your lender.
  • Your interest rate may be affected by whether or not you opt for a secured or unsecured loan. As a rule, you’ll find that secured rates are lower than unsecured.
  • Repayments are fixed over an agreed loan term, which is great if you prefer stability.

When to consider a Credit Card

  • A Credit Card is a relatively small line of credit loan that is permanent, and can be drawn down upon when required.
  • Any purchases made must then be repaid with monthly repayments.
  • Most credit cards offer an interest free period after purchases, when you can repay any balance without having to pay interest on top.
  • Because of a credit card’s flexibility and portability, their great for making small purchases when you’re low on cash. This means that interest rates for credit cards are generally higher than personal loan rates.

The Verdict

So, look - if you’re wanting to make a larger, one off, long term purchase, you want the stability of fixed repayments and a lower interest rate, a Personal Loan may be right for your needs.

If you’re after a more flexible form of credit to utilise when cash-flow is low, and are comfortable paying down your balance regularly to avoid paying higher interest rates, you may be better suited for a Credit Card.

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