When you need quick access to funds, personal loans and credit cards are the most common options. There is no universal answer as to which is the best type of credit – it all depends on your current needs and capacity to repay. Credit cards got a bad reputation, due to people constantly abusing their limits, but they’re not always a bad choice.
Various Aspects to Consider
The very first thing you notice are the interest rates, but that’s not the only thing that matters. Remember that the interest rates on your credit cards can change when the lender feels appropriate; usually, they are only required to notify you a couple of weeks in advance, and that’s all. On a loan, however, fixed rates remain fixed for the entire term. On the other hand, some credit cards have a interest-free period, and, if you manage to repay your debt before that period expires, you will make significant savings.
Credit cards are particularly useful if you’re self-employed, and you cannot get a very good deal on a personal loan. Cards are more flexible, which means you can borrow more one month, and repay more when your financial situation improves, and so on. For people with a fixed monthly income, a bad credit loan may be more suitable, since it’s easier to organize the budget around fixed payments.
The period for which you need to borrow money also plays a significant part in making the best decision. If you need a large amount now, and you want to distribute the repayments over a long period of time, then a loan is naturally the best solution. Of course, the interest rate will continue to accumulate, and therefore the long-term solution is always more expensive; but, since the monthly rates are lower, it’s also easier to cope with it.
Eventually, it all boils down to the deals you can obtain at the moment. In theory, one type of credit may be better than another, but, if you qualify for a promotional offer or a loyalty program at one lender, you may get far better terms than the regular ones.
Debt Consolidation Options
Some people prefer to use a personal loan as a method to consolidate debt from different credit cards. There are times when this solution makes sense, but it’s not always the ideal option; in fact, it can be a dangerous solution for people who cannot keep their expenses under control. If you know you have a habit of overspending, make sure you close those credit cards and do not open new ones until the loan is fully repaid.
The easiest way to compare different solutions is to use online calculators or mobile applications designed specifically to this end. If you still have problems understanding the data, you may want to turn to professional help, from an independent consultant or a credit broker. These decisions will shape up your financial situation not just today, but for the following years as well, so never rush into signing a deal until you’re perfectly confident that you’ve made the right decision.