Personal Loan vs Credit Card - Pros and Cons

HDFC Bank

Personal loans and credit cards are two prevalent income instruments and it's vital to comprehend which is better for various circumstances. Life has a method for standing up to you with the need to spend additional money for different reasons, startling or pre-arranged. Regardless of whether it's an existence occasion, a long-planned cruise, sudden medicinal expense or a room makeover, your financial plan might be ill-equipped to deal with the requests on your cash.

Two different ways to address these requirements is utilizing credit cards or personal loans. To enable you to settle on more educated choices, let’s run through the advantages and disadvantages of each approach.

Credit Cards

Financial institutions issue credit cards such as banks and credit card companies such as Visa, MasterCard, Discover and American Express. You can use them to buy products and services on credit and to receive cash advances. Charge cards are like credit cards, except that you must pay your statement in full each month and there is no interest to be charged.

The interest rate is determined by your credit history and score, your other debts, and a few other factors. Interest rates tend to be higher for cash advances than for purchases.

Here's an outline of the pros and cons of utilizing charge cards.

Pros:

  • Simple access: Even with just an average credit score, you ought to have the capacity to acquire a charge card with negligible object effortlessly and rapidly.
  • Exceptional rates: Credit cards often offer low initial rates for a period up to a year on buys and balance transfers.
  • Rewards: Credit cards generally offer some sort of rewards, for example, cash backs on purchase or preferred customer credits.  

Cons:

  • Low credit limits: If you have a poor or no financial record, credit card issuers may extend just a token credit limit.
  • Higher costs: Credit cards may charge higher interest rates than those available on personal loans. In addition, some credit cards tack on annual fees and other extra costs.
  • Minimum payments: If you owe money on several credit cards, your minimum monthly payments may greater than the monthly payment on a personal loan.

Summary: A credit card is a decent method to get to money more than once without an excess of issue. You can pick how rapidly you reimburse your credit, if you make at any rate the base installment.

Personal Loans

A personal loan is not secured by collateral, such as your car or home. They are usually more expensive than secured loans because the lender has no collateral to sell in the event you fail to pay back the loan.

You might be able to obtain a personal loan from a financial institution (banks, savings and loans, credit unions, commercial lenders) or loans aggregators such as Loanz Financial Services.

You must make an application, provide detailed information and be approved by an underwriting process that evaluates the risk that you won't repay on time. You'll then be charged an interest rate that reflects the risk. If your credit score is too low, you will likely be turned down for a personal loan.

Below are the main pros and cons of personal loans:

Pros:

  • Lower cost for good credit scores: In many cases, personal loans may charge a lower interest rate than that charged by a credit card.
  • Debt consolidation: You can use the proceeds from a personal loan to repay outstanding credit card debts because of the lower interest rates charged by personal loans. If the personal loan's interest rate is low, consolidation accelerates the pace at which you pay back your debt.
  • Higher loan amount: If your borrowing needs are higher, a sufficiently large personal loan may be more feasible than the amount available within credit card maximum credit limits.

Cons:

  • Higher cost for poor credit scores: If your credit score is less than good, the interest rate on a personal loan may exceed that on a credit card. This is especially true if you need to finance purchases and can obtain a card offering a special introductory interest rate of 0%.
  • Slower access to money: Banks usually take a longer time to process your personal loan applications. On the other hand, credit card approvals are usually immediate.

Summary: A personal loan gives you access to large amounts of money if you have a good credit score. You might have to put in some effort to get just one personal loan. But loans aggregators such a Loanz Financial Services have made it very easy and effortless to get personal loan. With the interest rates starting from 10.65%, Loanz Financial Services makes sure that the processing process is quick and easy, as easy as 1-2-3. They provide hassle free disbursal and helps you meet your financial obligations without any worries.