Have you ever needed to apply for financing for an extra or unforeseen expense? Maybe the car engine broke down, or you need urgent surgery, but you never quite understood which option you should choose? Resorting to a credit card and asking for a loan are good solutions for this situation, but they have some differences. Learn to distinguish and find out which one is best for you. (See also: 3 Differences between loan and financing).
Credit cards or Personal Loans?
Credit cards and personal loans are finance tools you have at your disposal for the most varied purposes. Both provide a line of credit that allows you to obtain money quickly and pay it later in installments.
Although similar, these financial products have some differences that you should be aware of so as to consciously choose one or the other.
When to use the credit card?
Credit cards are great for regular, usually smaller purchases, making it possible to repay the amount owed within interest free periods. However, you must opt for a credit card to pay for products that do not exceed your income and its within your monthly expenses.
If you pay off your card balance before the deadline, you avoid paying interest rates. In addition to avoiding interest payment, you also get some benefits. The benefits could be in the form of reward points or cash back.
Another good feature of credit cards is that you can pay for some purchases in installments. However, be aware that there are associated interest rates, so the total amount payable will tend to be higher.
In Canada, more and more people shop online. This is one reason many people decide to get a credit card, as it makes life easier for consumers by allowing them to buy and complete transactions online. In addition, a credit card is much more convenient than paying in cash or on delivery.
When to apply for a loan?
On the other hand, personal credit wins this race when it comes to larger purchases. These purchases usually take months or even years to pay back. So, you can use this type of financing for various purposes, from medical emergencies to buying a car or taking that vacation you’ve always wanted.
Nowadays, it is possible to apply for a loan from companies like Fairstone and LendingMate and have the money on time. The fast credit allows the customer to have the requested amount in their bank account within just two working days. In addition, interest rates are lower compared to credit cards.
Another advantage of taking out a loan compared to using credit cards is that it is easier to plan your finances, as you can schedule the payments in advance. In addition, since you can pay off personal credit over longer periods, you can choose to borrow a large amount and split it into smaller payments. (See also: 4 Essential Cautions You Need to Take Before Applying For a Personal Loan).
In conclusion
Both personal loans and using a credit card have their advantages and disadvantages, and it all depends on the purpose for which you need the financing.
In short, if you want to make smaller purchases, use your credit card. However, if you want to purchase a good or service with a larger amount, the ideal would be to apply for a loan.