Are you having huge problems to arrange money for your future needs? Or can't you really decide which way to go, towards a credit card or a personal loan?
Here are some pros and cons of both the options, read them and decide yourself:
1. Credit Cards
To meet your future expenses, it is the fastest and easiest way. If you got a credit card with enough credit balances, you could use it to buy or pay your bills any time.
Pros
a. Good credit comes with lower rates - If you have a good credit balance on your credit card, you can use the card for buying and paying bills without bearing a huge interest rate. But for availing this benefit for several months, you may require a good credit to qualify for a new credit card.
Cons
a. Your credit score may get a blow through the big charge - You can save a lot of money on interest if you make a big purchase or payment on your low-interest credit card. But, be ready to hurt your credit score due to too much credit utilization.
Suppose you have $50,000 credit limit and you have purchased worth $25,000 for your kids. By doing so, you are actually devoting 50% of your available credit limit. It is said that to maintain a good credit score, every consumer mustn’t utilize more than 10% of their available credit limit.
b. Rates may change - Interest rates on your credit card may vary depending on different social and economical reasons. So, you may encounter different rates and variable charges due to changes in interest rates.
When a credit card is best for you
Practically, most of the credit cards have higher interest rates. You can use credit cards for short-term purposes. It will be the best possible way to get more out of your credit cards.
2. Personal Loans
If you go for a personal loan, you may be charged with interest every month for a certain time frame. The time period may extend 3 to 5 years from the date of loan disbursement. To obtain a personal loan is a good option to paying off a big expense.
Pros
a. You get the option of budgeting - Once you qualify for a personal loan, the first thing you may need to do is to prepare your daily and monthly budget. The budget must be perfect for you to carry out your other expenses along with the loan payments. You may choose a time frame and a monthly payment amount suitable for you.
b. Zero impact on utilizing your credits - Many credit scoring companies have different views regarding personal loans and credit card accounts. If you’ve taken a personal loan and it is added as “installment” loan rather than “revolving” credit, you can be sure that it’ll not be considered in your credit utilization ratio.
Cons
a. A credit score can be hurt by the loan inquiries - Every credit inquiry will lower your credit score. So, in the case of a personal loan, the lender will surely fetch your credit report, and that’ll be counted as a credit inquiry. You can avoid this situation by applying for multiple loans at a time. You can also ask your lender about his/her minimum credit score requirement.
When a personal loan is best for you
Personal loans will be best for your longer-term money requirements. The purpose may be several, like starting a small business, a family money crisis, sudden health issues, any legal requirement or anything else. As you can get personal loans with better interest rates than a credit card, opting for a personal loan will be a good option if you may have a chance to default.
On the other hand, for a short-term purpose, if you can pay off the monthly dues on time, a credit card will be the best choice for you. Now, it’s up to you to decide which type of money resource is suitable for you.