When deciding between taking out a personal loan or using a credit card, there are many financial factors to take into consideration; however, the answer often depends on what you are purchasing. In general, personal loans are the best option for larger, long-term expenses while a credit card is best for convenient and immediate spending on smaller purchases. Continue reading to find out more about which option best suits you.
A personal loan is a great choice for your financing if it is going to take two or more years to repay a purchase. Personal loans works by giving you a lump sum of money up front, which you pay off over the course of a few years. This is a great way to pay for larger expenses such as the cost of home renovations or starting a business.
When taking out a personal loan, you can work with your local credit union to negotiate a fixed monthly payment and interest rate to repay over a specific period, usually about three to five years. Since the monthly payment remains constant, personal loans make it easier to budget your expenses. With a fixed repayment schedule, you will have the peace of mind that your debt will come to an end while credit cards are a revolving line of credit. A personal loan typically has lower interest rates than a credit card, but you are required to start paying interest from the first month.
Personal loans are even a great option for financing expensive purchases such as electronics or computer equipment. This summer, Common Trust Federal Credit Union is offering loans of up to $3,000 for computers or related equipment with rates as low as 7.99%. For more information visit our computer loan promotion page.
Credit cards, on the other hand, are a great option for immediate financing on short term expenses. Typically, you have the first 30 days to pay off your credit card balance without accruing interest, unlike personal loans where interest is included from the start. In general, credit cards are a great choice for paying bills and day-to-day expenses that are under $5,000.
Using a credit card is the best option if you want immediate financing for a purchase, knowing that you will be able to pay it off at the end of the month. While, credit cards provide the benefit of constant cash flow, just remember, the key is paying off your balance within thirty days to prevent your debt from continually growing. Since you can continue charging a credit card at any time, you run the risk of staying stuck in debt.