At times, we get stuck in certain circumstances where financial assistance is the solution. When managing finances, personal loans and credit cards pop up in our minds. They both stand out for their incredible features, offering financial stability. But we get confused while choosing between the two. A wise choice is important to avoid troubles in the future. If you are reviewing different personal loan interest rates and credit card options, go through the article to learn about credit cards and personal loans and decide accordingly.
Understanding Personal Loan
A personal loan is a preferred option to borrow money for major purchases. It is taken for emergencies, property purchases, consolidating debts, setting up a startup, and so on. A personal loan is unsecured and does not require collateral, but it carries a higher interest rate on your amount. They require an application procedure and acceptance for a time grant of a hefty sum. Furthermore, repayment duration is longer depending on the amount of the loan. Certain eligibility criteria for sanctioning loans differ from lender to lender.
Benefits of Personal Loans
There are numerous benefits of personal loans, such as
Personal Loan Interest Rates
A good credit score plays a key role in lowering the personal loan interest rate. Banks offer lower interest rates on personal loans when compared to credit cards.
In personal loans, individuals apply for personal loan to get a fixed amount, which they can return on fixed installments over a certain term. It aids in managing their budget significantly.
Do Not Require Collateral
Personal loans can be taken for any unexpected requirements. Personal loans generally do not require collateral. In certain cases, collateral is required, like a car loan, where the car will be pledged.
On approval of a loan, banks provide organized repayment schedules comprising amounts calculated as per personal loan interest rate from the beginning, which aid in managing debts.
Disadvantages Of Personal Loan
There are certain disadvantages of personal loans, including
- Personal loan interest rates will be higher for individuals with bad credit scores.
- The personal loan includes fees like application, service, and other associated costs. You must thoroughly review the terms and conditions when applying for a personal loan.
- Several penalties are imposed when failing in repayments or delayed payments, like late fees, prepayment penalties, return payment fees, or non-sufficient fund fees.
- A personal loan does not offer rewards.
Understanding Credit Card
When an individual wants to instantly purchase goods or services but lack money, they borrow the money from the bank using a credit card. The credit limit and interest rates vary with different lenders, depending on your creditworthiness. Individuals get time to repay their debts and thus have the flexibility to manage their financial stability. Individuals need to repay on the date given by the lender at specific interest rates.
Benefits of Credit Cards
There are many benefits of accessing funds using credit cards.
Interest rates are charged only when funds are used by individuals and not paid completely and timely. Interest rates may vary with the credit card issuer. No interest will be charged if an individual repays the complete amount on time.
Lenders provide rewards and 0% introductory interest rates.
Individuals do not have to apply for loans every time and can access funds to a certain amount.
Credit limit raises with strong account manageability and consistent repayments on scheduled time.
Rewards and Perks
Several credit cards offer rewards and points you can utilize on your next expenditure without using money.
Disadvantages Of Credit Cards
Here are certain disadvantages of borrowing money using a credit card.
- Interest rates charged on borrowing money are higher than on a personal loan.
- There are several hidden fees associated with funds.
- Credit cards have annual fees.
- If individuals access funds longer, they get caught up in huge debt and compound interest.
Key Differences: Personal Loan Vs. Credit Card
Here are some key differences between personal loans and credit cards.
|Differentiating factors||Personal loan||Credit card|
|Amount Access||Preferable for accessing huge amounts for specific purposes.||Suitable for purchasing goods or services, small amounts can be borrowed.|
|Term||You can apply for a personal loan with a longer tenure for repayment.||You have a short duration to clear your debts.|
|Application Process||An applicant has to submit personal and financial details for verification to get funds.||An applicant’s information is already registered. Thus, additional documents are not required.|
|Associated Cost||There are several fees associated with the application and the whole loan process other than interest rates.||Only interest rates are charged. Some hidden fees are involved, which get added to interest rates.|
|Eligibility||Anyone can apply for a personal loan.||Only credit card users get access to the funds.|
|Repayment Process||Borrowers have to repay in fixed installments within a specific period.||The amount must be repaid at the end of the month as a part of monthly credit card bills.|
|Approval Time||The loan gets approved in 3 to 5 working days if the applicant is genuine.||Credit card users can access the funds within 24 hours of getting credit cards.|
|Amount Limit||Amount finalized by lenders based on applicant’s income, creditworthiness, and credit history.||Depending on the preapproved credit card limit, borrowers can have limited access to funds.|
Opting for the right option between personal loans and credit cards depends on an individual’s financial goals and expenditures. Reasons such as immediate requirements, debt consolidation, credit building, and consistent expenses hinge on your decision. Evaluate your purpose, compare interest rates, and the benefits and pros to make your choice that fits your financial goals.
Q1. Can my creditworthiness be affected by a personal loan?
Ans. if you repay the loan installments on the scheduled time. Then it will be shown that the borrower is responsible for managing their finances and helping you get funds on lower personal loan interest rate and terms. If your repayments are not on scheduled time, then it will have a negative impact on your creditworthiness.
Q2. How unsecured loans are different from secured personal loans?
Ans. Unsecured personal loans do not require collateral. Secured loans require collateral to grant funds. Collateral is the official agreement where borrowers have to pledge property as security. If individuals fail to repay the loan amount, the lender will take the property.
Q3. Can the credit card balance be transferred?
Ans. Several lenders offer the facility of transferring credit card balances from one card to another. However, additional interest rates are applicable for transferring the balances. Interest rates may vary with different cards.
Q4. Can I take a personal loan for marriage?
Ans. Yes. Personal loans are applicable for marriage purposes.