Personal Loans vs. Credit Cards: Which Should You Use?

When borrowing money, you often choose between a personal loan and a credit card. How should you choose one? It always depends on your goals, financial situation, and how the funds are used. If used well, both personal loans and credit cards are helpful. However, they serve different purposes and have their pros and cons.

Credit Cards

Credit cards are revolving lines of credit. What does this mean? It means there’s a limit to how much you can borrow. Furthermore, you can repay at your own pace and make the minimum payment each month. Credit cards are ideal for smaller expenses and short-term loans. Unfortunately, credit cards often have high interest rates, and carrying over a balance will make the debt costly.

Personal Loans

Personal loans are installment loans with fixed interest rates and set repayment terms. Personal loans are more suitable for large, one-time expenses like covering medical bills, paying for car or home repairs, consolidating debt, or a huge purchase. Since personal loans have fixed monthly payments, they are highly predictable. Furthermore, they have lower interest rates as compared to credit cards.

So, Which Should You Use?

If you need a flexible way to fund smaller, recurring expenses and want to pay it off quickly, then a credit card is more convenient. However, if you need to finance a large expense or purchase while wanting a structured payoff plan, then a personal loan is the better choice.

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