One applying for a personal loan and a credit card has polarised reasons behind it. A personal loan can be used as lump sum money in one go, and on the other hand, the credit card could be for any large purchases or for maintaining a good credit score over a specific time. Credit card loans are available on a short-term basis.
A personal loan can help in case of emergencies. Individuals can opt for a personal loan if they need money for home renovation, marriage, education, and a vehicle.
On the contrary, individuals with a knack for building a good credit history through their purchases are eligible to get a credit card. The credit limit on the card can be accessed at any time: personal loans and credit cards both aid in building the credit score. The borrower needs to know the pros and cons related to these both.
Before we further discuss what’s better, a personal or a credit card loan, applicants should know the type of credit card they can get. The credit card option differs; for travelling individuals. The travelling credit card is the wisest option, and the cash back credit card is the best option for the reward specialist.
Pros of the Personal Loan
- Personal loans foster debt consolidation as an easy option to pay off the debt.
- The personal loan comes with a meagre interest rate and higher fund limits.
- In unsecured loans, there is no collateral requirement.
- Individuals with different credit cards can apply for a personal loan to pay off their debt and improve their credit scores.
- A personal loan is the easiest path to improve your credit score by paying EMI promptly.
Cons of the Personal Loan
- Personal loan characterises penalties and charges. Banks do not always provide the prepayment option; if they do, they incur extra interest charges on the principal amount.
- In the secured personal loan, the bank mortgages the applicant’s property, car or any such asset. The bank can seize the deposited collateral if there is any default in the payment.
- A credit card offers limited monthly payments, whereas a personal loan’s EMI is giant and fixed.
- A personal loan can be tricky for the extravagant person because, with the consolidated personal loan, one can quickly access the credit limit. That is where they can make mistakes of adding more debt to their existing ones.
Pros of the Credit Card Loan:
- Unlike personal loans, credit cards offer early money for purchases like TV, mobile phones, and jewellery. A credit card loan is available without any early interest.
- Many credit card companies offer loans with 0% APR on the transaction. The need-to-know fact is that the borrower should pay the whole amount before the APR period ends. This way, credit card loans would be easier to deal with and beneficial.
- Credit card loans are beneficial for those who have an addiction to earning rewards. Credit card users at different travelling destinations can make a decent amount through rewards.
- Individuals may not have the amount at their disposal on their debit cards when travelling. Travellers may need a decent amount that they can swipe their credit cards to the car rental companies and hoteliers.
- A credit card is best to have if any fraudulent activities occur lately. Credit cardholders get the alert on their phones via message and call.
Cons of Credit Card Loan:
- A credit card loan has a higher interest rate, which is a massive dent in someone’s financial history.
- With the credit limit, extravagant people cannot control themselves. This overspending habit leads to more debt.
- The individual should minutely read the payment bill every month to check if there are any late fees added to the statement or not. Few cards have annual fees, and the reward money would not be of many benefits.
- The short-term interest rate is like walking on landmines. If the individual does not read the terms and conditions carefully, they might pay a higher interest rate in the future.
Bottom Line
Considering the advantages and disadvantages of the credit card loan vs personal loan, the borrower can decide which would be the best option for them as per their financial standing.