If you’re looking to do a little borrowing, you might be considering either a personal loan or credit card. But which financial product is best for you?
In this article, we’re going to be examining both personal loans and credit cards so you can make an informed decision on which one better suits your individual circumstances and personal finances.
Let’s start with credit cards.
Everyone seems to have a credit card, and they can come in handy for a little retail therapy, secure spending abroad or when you just need a little boost to your finances.
Credit cards are best utilised for short-term borrowing of low amounts as the interest rates can be higher than those you’d be paying on a personal loan. Many credit cards allow you to pay off a minimum amount each month or more if you’d like, so you can adjust the amount you repay dependant on how much money you have spare each month.
As long as the minimum amount is repaid, you are servicing the debt, but this will significantly increase the amount of interest you repay on the outstanding amount and the time it takes you to clear the balance, so make sure you pay it off as quickly as you possibly can.
Next, let’s take a look at personal loans.
If you need to borrow an amount in excess of £1,000, a personal loan might be a better option. Personal loans have variable interest rates, but many of them can still work out cheaper than using a credit card, especially if you want to make a large purchase such as a car.
Personal loans offer higher levels of credit than a credit card too, so they’re an ideal financial product for higher value purchases. They also differ from credit cards in that you must pay an agreed amount each month for the term of the loan and the balance will be cleared within a set amount of time, normally between 12 to 48 months.
It is possible to pay your personal loan off early and make some savings on interest too, but some loans carry an early repayment fee to enable you to do this, so it’s worth trying to find a personal loan product that doesn’t carry a fee if this is what you’re aiming to do.0