When to use a personal loan instead of a credit card

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Make sure you know when a personal loan will offer a better solution to your financial needs than a credit card. (iStock)

Sometimes it can be difficult to know if a credit card or personal loan is the right choice for your current situation. While both options have their pros and cons, usually a personal loan is the best solution.

Credit cards offer a revolving line of credit, which means you can access funds whenever you have available credit. However, they often come with higher interest rates and monthly payments vary.

Personal loans offer a cash lump sum payment. Personal loans are often offered at lower interest ratesand most lenders offer fixed monthly payments. Some lenders will allow you to withdraw more than one personal loan at a time, but it depends on the lender’s rules and your credit history. Those with poor credit may have more restrictions or may not receive the lowest rates.

When looking for funding, be sure to research your personal loan options. Visit Credible to compare rates from multiple lenders and start the application process.

If you can’t decide which option is best for you, here are some situations where a personal loan is probably better than a credit card:

WHAT TO DO BEFORE OBTAINING A PERSONAL LOAN

Making an expensive purchase (for example, a car)

Unless you have a high credit limit with an ultra-low interest rate, a personal loan is likely to offer better terms and more competitive rates. Personal loan amounts vary widely. You can use a loan to cover many expenses, including buying a car, medical expenses, home repairs, or travel.

Expensive purchases can cost several thousand dollars. The loan rate can add hundreds to your total purchase price, and your payment can change from month to month.

For example, let’s say you make a $ 5,000 purchase. The interest rate on your credit card is 16% (slightly below average). If you do monthly payment If you pay $ 150 a month, it will take you about four years to settle, and you will pay an additional $ 1,657 in interest.

Now, suppose you have selected a $ 5,000 personal loan at the rate of an individual loan of 9% with a four-year repayment plan. It will still take you four years to pay off the debt, but your loan payment will be $ 124 and you will pay $ 972 in interest. A personal loan can save you $ 685 in interest.

Those with excellent credit history or the best credit history will receive the lowest rates. You can use personal loan calculator compare prices and find the best conditions.

Debt Consolidation

Personal loans are a great option when you need to consolidate several high-interest debt into one payment. In addition to saving money on higher credit card rates, optimizing monthly payments makes budget planning much easier.

Using a personal loan for debt consolidation can help improve your credit score by decreasing your debt-to-income ratio. Plus, making timely payments will also help improve your credit score. An additional benefit of debt consolidation with a personal loan is that you extend the maturity of the loan. If you find it difficult to pay off your loan, debt consolidation can help reduce loan payments and increase the time it takes to pay off the debt.

Remember, if you are using a personal loan for debt consolidation, do not start spending on your credit cards again. Without responsible spending, you could be in a much worse financial position.

Using a loan for debt consolidation is an easy way to free up excess money. Visit an online marketplace like Credible to access your personal lending rates

5 SMART WAYS TO CONSOLIDATE CREDIT CARD DEBT – AND 5 YOU SHOULD NEVER DO

When you need fixed payments to fit your budget

Credit cards are convenient, but the monthly payment varies depending on how much you owe and whether your interest rate has risen. If you want to live within a budget and it is important for you to know exactly how much you will pay each month, it is best to choose a personal loan.

When you take out a personal loan, your lender will most likely offer you a fixed repayment period (usually one to five years). The total amount of your loan plus interest is divided by the total amount paid. This allows the lender to offer you a fixed payment every month.

HOW MUCH DO YOU PAY FOR A $ 40,000 PERSONAL LOAN?

The essence

Personal loans are a great option if you want to make a large one-time purchase, consolidate debt and have fixed monthly payments. Before applying for a loan, be sure to visit You can contact experienced loan officers and get answers to your personal loan questions.

Have a financial question but don’t know who to contact? Write to the Safe Money Specialist at moneyexpert@credible.com and your question can be answered by Credible in our Money Expert column.

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