Consumers who are in need of a loan may be wondering whether they should get a personal loan or a credit card. The answer to this question is not simple. Ultimately, consumers will need to select the option that suits their individual needs.
What is the difference between a personal loan and a credit card?
For some people, personal loans and credit cards are the same thing – a loan. Anybody who has ever worked in the finance industry knows better. Both products have features which differentiate them from one another.
Listed below are some of the differences between personal loans and credit cards.
- A loan has a “fixed term”. Credit cards have what is called “revolving credit”. This means that when the loan is paid off, borrowers cannot take out any more money. A credit card’s line of finance never ends. Consumers can keep borrowing money as long as their card is active.
- Loans have a large establishment fee while credit cards have a smaller yearly maintenance fee. Both of these fees are used to compensate the bank for setting up the loan and maintaining it over the years.
- Personal loans allow borrowers to take out large amounts of money. For example, a customer with good credit may be able to take out a $15,000 loan. Unless a person has a very high income, this is very unusual for credit cards.
For most people, a personal loan will be the best option. As loans have a specified end date, borrowers will not get themselves into a cycle of debt. Not to mention, consumers with low interest rates will be much less interest than credit card holders.
Borrowers who are still unsure of what type of loan will best suit them should talk to their bank. The staff there will be able to tell consumers how much money they qualify for and the merits of each loan type.