When you need money to cover your unexpected emergencies, there are a variety of options to choose from. However, for most of us, the choice comes down to personal loans and credit cards. The demand for personal loans and credit cards is gaining a lot of momentum among borrowers. But, before you select one, here’s what you should know.
A personal loan is an installment loan that you can use for any purpose, such as debt consolidation, medical treatment, higher education, vacations, etc. You have to repay this fixed debt in equal installments for a specified time.
Credit card, also known as revolving debt, is a line of credit that you can borrow depending on your credit limit. It can be used 24X7 and is beneficial for those who require funds instantly. You can apply for both credit cards and personal loans online by submitting an online application, necessary information, and documents.Â
Five Reasons To Choose A Personal Loan Instead Of A Credit Card
Let’s have a look at five reasons for selecting a personal loan over a credit card.
1. It has low-interest rates.
The rate of interest is an essential factor that determines the selection between a personal loan and a credit card. In India, the interest rates on personal loans range between 10%-22%, whereas, credit card loans offer an interest rate of 15%-40%. Since personal loan interest rates are comparatively lower than that of credit cards, many people opt for such loans fulfill their needs.
2. It provides a lump sum amount.
If you are looking to borrow a substantial amount of money at once during unexpected events, a personal loan can be your perfect bet. Personal loans provide lumpsum, which means you get the entire loan amount in your account and you can’t borrow more after that. Further, you have to make fixed monthly installments over a specified time. The primary benefit of this feature is that you are not tempted to overspend your money as you would have in case of credit cards.
3. It comes with a long repayment period.
Typically, personal loans are offered for a period of three to five years. But, short-term as well as long-term loans are also available. The longer the repayment period, the smaller will be the EMIs you need to pay. On the contrary, credit cards do not provide you with the option of longer tenure with EMI options.
4. It helps to consolidate high-interest debts.
High-interest debts can be overwhelming, especially when you don’t have enough cash to repay them. This is where personal loans come in useful. By taking a personal loan, you can amalgamate all your debts, such as credit card payments, mortgage loans, etc. into one. It is an ideal option because personal loan interest rates are low and mixing it with other high-interest debts can lower the overall interest, thus making it convenient to pay monthly payments quickly.
5. It is ideal for cash.
Credit cards might be a great option, but when you need cash, personal loans are considered more useful. This is because you can easily withdraw cash from your account. But, with credit cards, withdrawing money is expensive. You have to incur various costs associated with the credit card cash advance, such as fees, which typically range from 3%-5% of the transaction amount.
Wrapping it up
In a nutshell, the choice between personal loans and credit cards usually depends on your credit score, the amount of loan you require, and also the period you need to reimburse it. A personal loan is a great solution when you need significant funds at reasonable interest rates and also fixed repayment terms.
