If you are in a position that you want to make an expensive purchase or need to consolidate debt, you essentially have two options: open a credit card and use it to make a purchase, or apply for a loan. Both of these options can help you to achieve your goal quickly, but there are a few reasons why you might choose one over the other.
What is a personal loan?
Personal loans allow you to borrow money. Whether that is to consolidate debt, emergency cash flow, or home improvements. You can obtain a personal loan from a bank, a credit union, or an online lender. Each personal loan has different terms and requirements that are based on the lender as well as your credit profile.
The main difference between a personal loan and an auto or mortgage loan is that these types of loans are secured with the property you are obtaining, while a personal loan is generally unsecured. This does not come without a trade-off, as personal loans generally have higher interest and larger initial credit requirements to be accepted.
What is a line of credit?
Credit cards are also known as a line of credit. They can be used to purchase goods and services online as well as in-person where accepted. Generally speaking, credit cards give the user one month to pay the balance or interest will be charged. If the minimum payment (usually around 10% of the balance) is not paid, a late fee will be added to the bill. Credit cards carry interest rates anywhere from 15-25%, with an average of 19% in the United States.