We all know that saving is always the best option, but sometimes we just can’t.
For example, if you want to buy a house/ start a business, it definitely requires a huge amount of money. When this happens, you might be faced with having to decide which type of financing wins out.
Some people may ask which is the best option: Credit Card or Personal Loan. Well, both options have their advantages and disadvantages. The answer depends on what you need the money for and how much you can pay back in monthly payments.
All in all, we will discuss about the difference between Personal Loan and Credit Card today.
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As mentioned above, if you are in need of money quickly, a personal loan might work better for you than a credit card because it can be approved within 24 hours while a credit card approval process could take up to 30 days. The longest duration would be 60 days!
Before we furthur discuss about its differences.
Let’s us learn about what is Personal Loan and Credit Card first.
What is Personal Loan?
A personal loan is a loan you qualify for based on your credit history and income. So, it’s easier to get the money you need without having to go through a rigorous process of qualifying.
Besides, it offers a one-time payment of cash to borrower, through scheduled payments. This means you can get your financial needs met without having to sell off all your assets and become broke!
What is Credit Card?
The first credit cards were invented in 1946 by John Biggins who was working at the Brooklyn Navy Yard. He had seen his wife struggle with keeping track of her household expenses and came up with the idea.
When you use credit card to buy something, the store will swipe it through their machine and then send the information to the bank that issues your card. The bank checks whether you have enough money in your account to cover what you are buying. If you do, it will sends an approval message back to the store and they let you walk away with your purchase.
Difference Between Personal Loan and Credit Card
- How It Works
Personal Loan: You will receive a one-time payment of cash that you repay over the course of a predetermined term with interest rate. This is the best choice for those who need a huge amount of money with more than one year fixed payment.
Credit Card: You will have a revolving credit limit. This means that you are able to spend up to your credit limit and then pay off the amount before it’s due so that you can continue spending.
- Monthly Payment
Personal Loan: Normally, it is fixed but it also can be variable in some situation. This is more affortable because you can choose how much to pay every month, and it will be easier for you to budget your finances.
Credit Card: It offers variable monthly payments (depend on how much you spend in a billing cycle). This is suitable for those who are able to pay off your card balance faster and not accruing any interest.
- APR
Personal Loan: Normally offer a fixed interest rate. Qualify for a low Annual Percentage Rate (APR). The average interest rate is 9.41% (depend on your credit profile).
Credit Card: Most of the credit card offer variable interest rates because it is tied to anothet interest rate like prime rate. It also can remain fixed but it may increase also if you delay the payment. The average interest rate is 16.17%.
Overall, we had discussed the difference between Personal Loan and Credit Card.
We couldn’t said that which is the best one but you can make the decision based on your own need.
Thanks for your time reading.
Do you have any question? Feel free to drop it at comment box below.
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