When the consumers need money especially to make payments, they often turn to credit cards or either personal loans for a cash infusion. Personal loans and credit cards both are the types of credit that are provided by financial institutions. They can be for similar amounts. The structure of the credit cards and personal loans are similar. They are both the forms of credit so they both require a monthly repayment. What however differs are the features and its fees.
- Credit cards are small plastic cards which are issued by the financial institution or by a payment provider like Visa or MasterCard offers a line of credit that can be used for the purchases or consolidating of debt.
- As long as the borrower pays his statement or the money which he borrows within the grace period of 25 to 30 days, he generally won’t require to pay interest or other fees.
- A credit card is known as revolving debt. However, it has a credit limit that borrowers can use as often as he likes. The borrower can choose to pay the entire balance off at the end of the month.
- Offered credit limit and it is required to make ongoing repayments to keep your account in good standing.
- The borrower can continually draw up to and thus including that limit and then can spend however much he chooses on his card.
- However, the borrower needs to repay a percentage of whatever he spends each month.
- Credit card rates are variable, the amount which the borrower is charged for maintaining a balance may change over time.
- If the borrower has good control over his spending and he regularly follows his budget then a credit card could thus be suitable. However, the person can make his choice between a Credit card and a personal loan.
- A personal loan, on the other hand, is considered as a fixed debt. The borrower receives a fixed amount of money he can repay it in equal installments.
- Personal loans are for a finite amount of time. Whereas the credit cards are considered as a revolving line of credit.
- Personal loans are usually available for the terms of between one and seven years. The borrower receives the entire loan amount at the beginning of the term.
- The borrower then makes ongoing payments to repay the loan in full.
- If the borrower will take an unsecured loan, he may get hit with a seriously high-interest rate. To offset the risk of lending the money, the lenders tack on additional fees or other charges.
- Personal loans also can charge the borrowers an early repayment fee. The borrower would need to confirm whether this is the case with the lender.
Credit cards thus offer interest-free days, balance transfers, and also rewards but the personal loans are considered as more suitable for debt consolidation and also have a maximum loan term so the debt is always repaid.
While annual fees are popular with the credit cards, personal loans however favor application and also monthly services fees.
The borrower needs to be discipline towards his credit card and personal loan. He must make the regular repayments.