Should I Use a Credit Card or Get a Loan?

by | Dec 4, 2020 | Borrowing Tips | 0 comments

Life has a way of creeping up on us sometimes, with unforeseen expenses or emergencies. Millions of people rely on loans or lines of credit, to make ends meet, when these circumstances arise. There are many options out there these days, to help you manage your finances, including personal loans and credit cards. Many people automatically use credit cards for their additional expenses, but that may not always be the best option. Loans are also a great tool, when used for the right things.

If you’re looking for the best and smartest way to handle your bills, it’s smart to do the research now, to set yourself up for success. Should you charge it? Or get a personal loan to cover it? Let’s dive in, and explore the facts and differences between these two popular financial options.

Personal Loans

Loans are great for when you need a large lump sum of money up front, and need some time to pay it back. For one-time expenses, loans can give you immediate peace of mind, while giving you many months or years to pay off the balance. 

A personal loan may be a good choice when:

  • You have decent credit, and can get a competitive APR
  • You need to finance a large expense, such as a medical bill, car repair, home repair, or another one-time thing
  • You’re looking to consolidate other, higher-interest loans
  • You can commit to making the set payments each month for the loan term

Loans typically have lower interest rates than credit cards, and are often easier to manage, since they involve one set amount. Pay it off, and you’re done!

Credit Cards

Credit cards offer access to a revolving line of credit which you can use as little or as much of as you’d like. Instead of getting a lump sum of cash, like a loan, you can borrow up to your credit limit and make payments each month based on how much you’re using.

Credit cards are best when:

  • You need to fund smaller expenses, such as gas, groceries, toiletries, or routine medical care
  • Your card comes with rewards, such as cash back or discounts at stores you normally shop at
  • You can afford to pay off the balance each month

Credit cards typically come with much higher interest rates than personal loans, and therefore, are best for smaller, short-term expenses. You can use your credit as you need it, but could get hit with limits and high fees.

Depending on your needs and your circumstances, either putting something on a credit card or getting a personal loan may make sense for you. Do your homework, and talk with a local lender about which options are best for your situation.