Credit Card vs. Unsecured Loan

When you need extra cash for an unforeseen expense, or to make a large purchase, there are two simple options available. The first option is to apply for a personal loan and the other is to obtain a credit card. Personal loans allow you to borrow specific amounts of money and then repay it over a period of time. People who already have credit cards but are paying high interest charges can save a lot of money by checking online to compare balance transfer no fee credit cards.

Balance transfer credit cards allow you to move your balance from your old card onto the new one. Generally these cards exempt you from paying interest charges for a period of several months. The amount of time that no interest is charged on purchases varies for different credit card companies.

Be aware that after this initial period interest will be charged, so it is important to check how high the interest is before signing up for the card. There are advantages and disadvantages to both loan types, so let’s look at the differences.

These loans are given for a specific amount of time and have a specified repayment schedule. Payments must be made on a monthly basis to cover the loan amount and the interest charges accrued on the loan. It is possible to get secured or unsecured loans. Secured loans can only be obtained by putting up valuable collateral such as a home. If you miss your monthly payments the lender has the right to seize your home to get their money back.

Unsecured loans do not require collateral but are charged higher amounts of interest. The lender incurs greater risk when you borrow money because they have no recourse if you default on the loan. Compare this to temporary medical insurance, where the lender also charges a higher interest rate to offset a more temporary payment. Secured loans allow you to borrow a much larger amount of money for a longer time period because you have put up valuable collateral to secure the loan.

Credit cards and personal loans differ because credit card companies do not provide you with a specified loan amount. Credit card companies give you an amount of available credit that you can use however you want. Most credit cards are free and you do not incur charges until you have accrued a debt on your account. Some banks do charge annual fees and interest rates vary greatly between different credit card companies.

Interest rates on credit cards tend to be higher than for personal loans. Payments must be made every month and you are not charged interest if you pay your bill in full every month. Some credit card companies offer introductory specials that give you an interest-free period of several months. Check the credit terms carefully to make sure that the interest rate does not rise to exorbitant levels after the initial interest-free period.

Short-term borrowing may be more cost effective with a credit card that offers a low interest or interest-free period. If you repay your loan during this time you will pay very little in interest. Personal loans are better for people who wish to make a big purchase or have a specific goal in mind that requires a large amount of money that cannot be immediately repaid. Interest on personal loans is adjusted according to market indices and is usually a lot less than you could obtain on a credit card.