But which choice is the best for you? Here are the pros and cons of both options to help you decide which way to go for your next purchase.
Pros of Personal Loans
There are numerous benefits to applying for an online personal loan rather than a new credit card, including:
- Relatively low interest rates
- Many lending options for a competitive rate
- Fixed or variable rates that can save you money depending on the economic climate
- Receiving a sizeable, lump sum all at once for that big purchase you are considering
- Many lenders will not charge you for prepayment, so you can save money on interest by making earlier payments when you have the excess cash flow.
- Some lenders also offer a grace period in which a borrower is allowed to be late on payments without penalty.
- Other lenders offer additional benefits such as unemployment freezes on online personal loans and career counseling.
Cons of Personal Loans
Conversely, online loans aren’t flawless. For example:
- Until you’ve completed paying off your loan, you may not borrow more money. While we’ve listed this as a con, it’s actually a benefit for most people that helps keep excessive borrowing – an unhealthy, dangerous habit – at bay.
- Hidden fees can be costly.
- Taking out a loan will affect your credit score.
Avoid these pitfalls by borrowing from a reputable lender, reading through the terms carefully, and shopping around for the best rates.
Pros of a Credit Card
On the other hand, a credit card does have some benefits of its own such as:
- Credit cards represent revolving credit which means you can spend up to the credit limit as often as you want.
- A credit card will allow you to pay just the minimum monthly requirement, which means you can keep using the card even with an outstanding balance.
- Credit cards might come with bonus perks such as loyalty points, miles, and discounts that you can use in select stores or situations.
- You can have multiple credit cards opened and in use simultaneously.
Cons of Credit Cards
Credit cards definitely have drawbacks:
- Because it is revolving credit, you can keep yourself in debt indefinitely.
- The interest rates are often very high.
- Benefit policies can be too strict for people to actually monetize the perks.
- Credit card companies have the right to (and often do) change policies at any given moment, denying cardholders the benefits they originally signed up for.
- Having multiple cards gets people into the habit of racking up not just one, but several credit card debts, constantly shifting debts from one card to another.
- Multiple cards mean you’ll need to keep track of multiple monthly payments.
- Missing a payment will incur severe penalties in the form of increased interest rates.
In the end, an unsecured loan is the better option if you need to make a large purchase or are planning an event. 0% introductory APR credit cards are good for small purchases or to pay for something that you’ll absolutely be able to pay off within just a few months.