fbpx
Mon - Fri : 09:00 - 5:00. Appointments Necessary
02 8814 8700

Single Blog Title

This is a single blog caption
Personal loans vs Credit card

Personal loans vs Credit card

///
Comment0
/

Personal loans or credit card bills are often considered when planning for a vacation. Choosing between the two can be tricky since both of them provide different benefits.

A personal loan is basically taken as an amount and paid in installments over time. Purchases such as homes, cars, investments, and vacations are the main target of a personal loan. Some agencies use a very flexible repayment option for personal loans. The flexibility allows you to budget your needs accordingly. Often, there is also an option to make lump sum payments without having to pay extra.

On the other hand, a credit card is a limited accessible fund program that can be used for daily expenses and times when you’re vacationing. However, just like personal loans, credit cards are also unsecured lendings.

Difference between personal loans and credit cards:

The significant difference between personal loans and credit cards is with personal loans; a lump sum will be given to you upfront. However, with credit cards, there’s already a limit set for you to spend. Both of them carry advantages and disadvantages. Let’s learn about them step by step.

Personal loans:

Variable interest or fixed rate:

With the interest rates shifting, variable rates also change, so variable rates can come off as challenging for many. The interest rates getting higher will also mean that repayments will be higher. Furthermore, if the interest rates decrease, the rebates are less as well.

Repayments are generally fixed with fixed interest. The fixed interest tend to remain the same over the term period, which is why this may come off as flexible to many. The fixed-rate allows you to keep track of the repayment billings each time it comes out of the bank.

There’s no exit fee with a variable interest rate. A variable interest rate loan could be better if you’re planning to pay out the loans early.

Why is your credit score important?

When you purchase a loan, the interest rate that will come with it depends on your credit score. The credit score is the summary of the personal and financial information in the credit report you provide. The credit report is what allows you to get a personal loan. If you’re opting to fix your credit report for a better chance at personal loans, you can always get it fixed by credit repair. There are also ways to consistently improve the credit score by merely lowering your credit card limit paying your bills on time. Paying for your credit card each month in due time will reap great benefits for you. Your credit score is generally calculated on what you’ve borrowed.

Unsecured and secured loan:

An unsecured loan is a process where you do not have to provide your possession as a security source. But taking an unsecured loan will make the interest rates higher on repayments. For unsecured loans, you’ll need a loan guarantor. Failing to pay back the loan can have your lender take legal actions against you.

On the other hand, secured loans have to have you provide your possession or asset such as a car, jewellery, and security stance. Not being able to pay back the loan can have your lender sell the asset you’ve given as security stance.

Borrowing amounts for personal loans:

One will be approved to borrow an amount of money when taking out a personal loan.  After having the borrowed amount set, this will generally be given as a lump sum at the beginning of loan term. For personal loans, you’ll only be able to spend the specific amount retained for you.

Interest rates and repayments: personal loans allow you to get access to low-interest rates; however, you’ve to make repayments over a specific term. The amount will have both principal and interest.

Fees and charges of personal loan:

A personal loan fee is application charges when you’re taking out the loan and a small monthly fee that needs to be given on a specific date. The fees may vary from lender to lender. However, it also depends on how much you’re planning to purchase. A monthly payment can also be added with the interest rate if you will so.

Credit card:

The best way to know what credit card bills will be the best fit for your finances is by analyzing your spending habits. With many credit card options, you can choose amongst many by working out how much you need to pay each month. There are options to get interest-free credit cards, that means you do not have pay anything within a particular timeline (say 56 days). However, these credit card options may come with a higher interest rate and an annual fee, but that could be worth it if it works within your habits.

Borrowing:

With credit cards, you have great flexibility. You’re offered to spend a certain credit limit—the lowest credit limit as low as $1000. As personal loans allow you only to pay the borrowed amount you’ve received upfront, credit cards come off differently. A credit card lets you keep spending up to the available budget. The primary factor to consider when opting for credit cards is credit card debts. Australians are found to suffer from credit card debts more than any other financial crisis. Being sensible with your spending habits and paying off the credit bills timely will prevent the cause from credit debt. It can also help if you keep card balance to the amount which you can afford to repay.

Repayments and interest rates on credit cards:

Unlike personal loans, which has variable and fixed interest rates, credit card interest rates tend to be higher. The high-interest rate can be avoided by paying the credit card amount in full each month in due time.

Fees and charges of credit cards:

Although credit card billings have an interest rate, you only have to pay a certain amount for the credit card yearly. Additional costs for a credit card would stick along if you try to withdraw cash. In such cases, it is better to plan a personal loan, since there are no additional fees attached when withdrawing a lot of money.

Credit cards help a lot with short term cash flow and monthly expenses.

Conclusion: 

Whether you choose to go for a personal loan or a credit card, the priority should always be on the financing habits you’ve cultured. This will help you to decide which one to take for the plans you’ve made.

Leave a Reply