5 reasons to choose a personal loan over a credit card
There comes a time in life when you need to borrow money quickly. Maybe you need to pay for emergency medical treatment, your car has broken down, or you need to do something important.
At this point, you may prefer to use your credit card to get the money you need and settle your balances later. Swiping your credit card to pay for any expense can be easy, but it’s not always the smartest choice. Credit card debt is expensive and can take a long time to pay off.
If you’re facing an expense that you can’t cover with your savings, consider taking out a personal loan. In some situations, personal loans have a few advantages that make them a better choice than credit cards.
Offers a low interest rate
Credit cards are infamous for charging high interest rates on carried over balances. In April 2022, the average credit card interest rate was 16.36%. What does this number mean? For example, if you have a credit card with a balance of $2,000 and an interest rate of 16.36%, you will be charged interest of $327.20 each year. That’s over $27 a month!
But with a personal loan, lenders usually offer low interest rates. Hence, making it a much better option for you to borrow. And that’s especially true for applicants with a good credit score.
The higher the credit score, the lower the interest rate. Indeed, a high credit rating is an indicator of low risk. Plus, it tells lenders that you’re more likely to repay the loan on time. So if you’re looking to borrow money and want to avoid high interest rates, a personal loan is the way to go, and having a strong credit rating will qualify you for the best rates.
Avoid major damage to credit rating
The lender conducts a credit check when you apply for a personal loan, and it can remain on your credit report for up to two years. Your credit score could drop by 5 to 10 points.
You should expect this hit if you take out a personal loan. On the other hand, if you accumulate too much balance on your credit card, it could put your credit utilization rate in an unfortunate place and damage your credit score more than a thorough investigation could cause.
If you choose between the two, a personal loan is preferable. Imagine what could happen if you couldn’t make your credit card payments on time. Your interest rate would skyrocket, you would start racking up late fees, and your credit rating would plummet.
A thorough investigation is not something to fear if you take out a personal loan. However, the damage caused by maxing out your credit cards is worse.
Fixed monthly payments
Another advantage of taking out a personal loan is its predictability. You know exactly how much you borrow and your monthly payments with a personal loan. Plus, fixed monthly payments make it easier to budget for your loan. Since personal loans have a fixed repayment schedule, you can also prepay your debt without penalty.
Unlike credit card debt, which can fluctuate with changes in your interest rate or spending habits, personal loans give you the peace of mind of knowing exactly when your debt will be paid off. Ready to get a personal loan? Check out creditninja.com to find the best option for yourself.
Wide range of uses
Unlike credit cards, where money is limited to what you have in your line of credit, personal loans are usually granted in a lump sum. So you can use it all at once or in increments, depending on your needs.
You can use a personal loan for a variety of purposes, from consolidating debt to financing a major purchase.
Help build credit
Subscribing to a personal loan requires making regular monthly payments on the capital and interest on the loan. Lenders report your payment record to the credit bureaus.
If you make quick and regular payments on a personal loan, it will increase your credit score. Payment history is one of the most crucial factors in determining your credit score. It represents 35% of your FICO score.
So if you’re looking to improve your credit score, a personal loan can be a useful tool. Simply make your payments on time and in full each month.
A personal loan allows you to borrow money for any reason. Need to consolidate your debts? Make improvements at home? Cover an emergency expense? A personal loan can help you. So before you swipe your credit card, consider a personal loan. The benefits may surprise you.
Tiffany Wagner story