Whenever you need to borrow to consolidate your debts or cover any other expense, the decision will most likely come down to a personal loan vs. credit card. With either option, you can access funds fairly quickly and pay back later.
Unfortunately, choosing between personal loans and credit cards can be challenging. While a credit card is an ideal option for short-term debt, a personal loan will be the most viable option if you need more time to repay the loan.
Regardless of whether you opt for a credit card or personal loan, you need to find the lowest cost option for your financial needs. This post discusses both credit cards and personal loans and also offer tips on the best choice for your situation.
Personal Loans and How They Work
Personal loans allow you to borrow a specific amount of money with a fixed repayment schedule, fixed interest rate, and a fixed monthly payment as well. This means that you will know exactly how much you need to pay every month and the exact date when you will be through with your loan payment.
Personal loans Quebec are best for individuals who want to borrow large sums of money and pay it back over a relatively longer timeline. Each month, you pay the same amount of money. Personal loans can either be secured or unsecured. You should consider applying for a personal loan when:
- You need between two and ten years to repay the money that you borrow
- Your credit score is good, and you want to qualify for a low-interest loan
- You need to consolidate high-interest debt, and you don’t qualify for the 0% APR credit card
Credit Cards and How They Work
Credit cards are one of the most expensive forms of financing. Most of the times, the interest charged on your credit card debt is double in comparison to what is charged on personal loans.
The due date for your credit card debt is the deadline for you to make the minimum monthly payment. If you fail to make the minimum monthly payment on time, you will incur late payment penalties.
The interest charged on your credit card debt is usually calculated on the basis of your average daily balance.
In some cases, the higher the balance, the higher the interest rate. If you aren’t careful with your credit card usage, you may find yourself in a vicious cycle of debt. But this doesn’t mean that everything about credit cards is bad. You may opt for a credit card when:
- You are sure that you can pay off your balance quickly to minimize the interest charged on your balance
- You can’t qualify for a low-interest personal loan
- You want to enjoy the flexibility of making just a minimum payment every month
- You don’t have any collateral to provide as security to qualify for a low-interest secured personal loan
The Bottom Line
Credit cards and personal loans are similar in many ways since they both let you borrow money and repay it over a specific timeline. However, one option might be a clear winner over the other depending on your situation and preference. Just make sure that you shop and compare all the financial products available to you before you make a final decision.