When we toss up between personal loans vs credit card and the gazillion other types of credit on the market we quickly become confused because of the sheer choices we have. I know how you feel because I’ve been there myself in several occasions. So what do we do when we find ourselves in search of credit?
Decision time: Personal loan vs credit card
To help you choose from the various types of credit take a look at the individual credit lines below and what you can expect to get for it.
Inside credit cards
Take a look at the benefits of choosing a credit card and how this can affect you financially.
- Borrow money at will up to a pre-set credit limit.
- Buy stuff online, offline, over the phone.
- Keep borrowing provided you pay back enough to stay below your limit.
- Card might attract a penalty charge if you fail to make the minimum monthly payment.
- Attracts higher interest rates than other types of credit.
- Potential to cost a lot in interest if you get into excessive debt.
- Great for short-term credit to buy groceries and household goods.
Inside charge cards
Charge cards are fabulous if you understand how they work, read on to find our more.
- These cards won’t allow you to carry debt from one month to the next.
- Balance to be paid in full each month.
- If you fail to pay of the balance in full you may have to pay large penalty interest rates and fees. Some lenders might cancel your card in the process.
- Rewards are potentially larger and more generous, but must have discipline to manage the charge card.
- Make sure you know whether the card has a preset spending limit. If not, watch your impulse shopping because you could end up with a monthly balance you can’t afford to pay off.
Inside store cards
Store cards are all the hype these days. Pretty much any Australian department store or places like Woolworth have their own store cards these days.
- This credit card can only be used in participating retail stores.
- Fees might be lower with longer interest-free periods than with other credit cards.
- If and when interest is charged it might be higher than with other credit cards
What are interest-free or no-repayment terms?
- These terms are usually offered by department stores and large retailers.
- It allows you to buy a large-ticket household item such as a TV, a fridge, or else and not pay anything for a predetermined period.
- A good alternative to buying higher priced items as long as you can pay the bill on time.
- Failing to do so will incur large interest fees and other possible penalties.
By now you should know half of whether personal loans vs credit cards are the better choice. Read on to learn about the second half.
Inside personal loans
- A set amount of money is borrowed to be paid back within the stipulated time frame.
- Most people borrow money on this loan to buy a holiday, pay for home renovations or buy a car.
- Personal loans usually offer lower rates of interest than credit cards.
- Credit specifications are set within the contract.
- Choose between secured or unsecured loan.
- A secured personal loan might have a lower interest rate than an unsecured loan.
- With a secured loan, the lender holds security over one of your assets.
- If you can’t make repayments the lender can repossess the goods you bought with your loan and sell them to recover his money.
- A mortgage is a secured loan typically repaid over 10 to 25 years. The security is the property you buy.
- If you default on your mortgage the lender can foreclose the home which means he gets the money from the sale and you get nothing.
Inside credit overdrafts
- An overdraft allows you to borrow money up to a specified limit.
- Interest charges and fees will be applied to this type of credit.
- By overdrawing your accounts without prior agreement you may have to pay high penalty fees.
When you choose your credit type
Once you understand the difference between the various types of credit and made up your mind in regards to personal loans vs credit cards, then you can choose the applicable credit type by applying for it with the lender of your choice.
Once you do, the lender will do a credit rating check on you to see whether you have a sound credit rating and are able to make the repayments.Back to top