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Fixed rate personal loans vs. credit cards – A detailed comparison

Personal loans and credit cards have become quite important in our daily lives. We cannot think of going to the shopping malls without our credit cards in the wallet. We cannot think of buying an item of personal use like a washer or a refrigerator without a personal loan. However, you must have wondered as to which one of these two is a comparatively better option. In order to know which one is a better option – fixed rate personal loan or credit cards, one needs to compare each and every aspect of the options.

Comparison between personal loans and credit cards

There are various aspects which need to be compared in order to know which is a better option of the two. Let’s take a look at the various comparative factors:

Comparison of interest rate between both the options: Interest rate is an important cost associated with credit cards as well as personal loans. This is one factor which will determine whether or not you will be able to afford the loan or the card. It should be noted here that an average personal loan with fixed interest rate will charge 3% less compared to that of a credit card. Keeping this in mind, people will prefer taking out a loans for people with bad credit than taking out a credit card.

Comparison in respect to application fee: Well, a personal loan can charge you an application fee of $100 but the credit cards hardly charge any kind of application fee. As a result many people prefer taking out a credit card than a personal loan.

Comparison in respect to borrowing period: Personal loans are available for a short period of time whereas you can take out a credit card debt for long period of time. However, you should remember that as the interest rate on credit cards are quite high, if you hold the debt for a long period of time, you will have to pay a large amount of money as interest payments. This will make your debt costly in comparison to that of a personal loan. Keeping this factor in mind, unsecured personal loans will be a better option for you.

Comparison in respect to spending habit: If you can control your spending habits and manage to pay off your debts on time, then credit card is a good option for you. Moreover, as personal loans will charge you a pre-payment penalty, opting for credit cards will be a better
option if you can manage to pay off your debts on or before time. However, if you cannot pay off the debts on time or if tend to over-spend always, then you should better avoid the credit cards.

Comparison in respect to type of purchase: If you wish to buy a car or any other costly item, then personal loans can be of better help. This is because the loan amount will be bigger but the interest rate will be lower so you may have to pay less in respect to the overall loan. Credit cards are better for regular shopping.

Hope now you understand the difference between both the options.

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