There are different ways to pay for things that you want and need. A credit card is one option available to most people, but you might also consider personal loans for debt consolidation. Using a personal loan is sometimes better than paying for something with a credit card, though several factors will go into making that decision.
Let’s go over three signs that a personal loan might be a better option for you.
Many individuals have several credit cards. If you’re one of them, and you have credit card debt, you will need a strategy for paying it off. It can be easy to fall into debt because it’s challenging to remember when every credit card bill is due, especially if you need to make payments on each one at different times of the month. This is one of the downfalls of using credit cards.
Personal loans are much more predictable. With a personal loan, you get the money you need for a purchase or project ahead of time and will know exactly how much your monthly payment will be and when it is due. Aside from that, personal loans will typically come with a fixed interest rate, which is not always the case with credit cards.
Some credit cards have a variable interest rate. If that’s the case, the rate can change without you being aware of it. Many credit card companies will lure you into opening an account with them by offering you a lower interest rate for six months or a year. That changing interest rate can sneak up on you, which won’t happen with a fixed-rate personal loan.
2. How Much You Need
Another sign you might want to pay for a large purchase with a personal loan rather than a credit card is if you need a large chunk of money. For instance, maybe you need $50,000 to put a new roof on your house and to make some other expensive repairs or upgrades.
If so, a personal loan is almost always a better option than a credit card. Most credit cards will not extend you such a large line of credit. A personal loan will make more sense if you need a large sum quickly, especially if you have a solid credit score and can show the lending entity a dependable income stream. Using a personal loan for a substantial purchase will also typically mean you pay less in interest than you would by using a credit card and paying it off over the same time period. This brings us to our next point…
3. Lower Interest Rate
You might choose to go with a personal loan over a credit card for a significant purchase if you can get a lower interest rate on the loan than you can on the card. Credit cards might attract you with a 0% APR, but that rate will probably not be in effect for very long. The rate is likely to change before you have a chance to pay off the whole amount.
A personal loan offer might come with a lower interest rate than your average credit card. If so, it’s the smarter move, since you will end up paying less in interest while you’re paying back what you borrowed.
A Loan is Sometimes the Better Move
When considering a major purchase, if you know you can get a better interest rate with a personal loan than you can with a credit card, it’s likely the way to go. If you need a large amount, it’s also probable you can get a loan offer to cover it, but most credit cards will not have a credit limit large enough to accommodate the sum you need.
Finally, you might want to get a personal loan rather than use credit cards for a purchase if you’re looking for predictability. With a loan, you will know precisely when and how much you’ll need to pay each month. Credit card payments are less predictable, especially ones with variable rates.
If you need money for a large project or purchase, look into a personal loan as an option before immediately turning to your credit cards.