Every adult is required to make some big decisions about their lifestyle. Which car should you buy? What apartment should you rent? How much can you afford to pay for college tuition?
In order to cover all of these major expenses, sometimes using a line of credit or taking out a loan is necessary to keep up with the pace. Here are some guidelines to help you navigate when you should use a credit card and when you may need to take out a personal loan.
What’s the difference between using a credit card and a personal loan, both are borrowed money aren’t they? The greatest distinction between the two can be found in the amount that you’re able to spend using these borrowed funds.
Using Credit Cards
For financing over a small amount of time, credit cards can be very beneficial. Credit cards give you a line of credit, which establishes a maximum spending amount that you can borrow as needed. They can be used to pay recurring expenses such as phone bills, gas, groceries, or subscriptions. And as you build a history of meeting these payments in a timely manner without going over your limit, you can increase your credit score at the same time.
Credit cards are your best option for consistent, regular payments. You don’t want to spend money that you don’t have, so be careful to only spend what you can pay in full. If you wait to repay your standing monthly balance, you’ll be charged interest that will increase your costs exponentially. More often than not, interest rates for these cards can be in the double digits.
Using Personal Loans
Large purchases are the best usage of personal loans. They typically have lower interest rates than credit cards, so it’s more convenient to pay them off over a longer period of time. If you’re looking for a way to afford rent or purchase a car, a personal loan may be a viable option for you.
Upon agreeing to a total amount for a personal loan, you also agree to a payment plan. Personal loans are considered to be installment loans, which are loans paid in monthly installments over the course of several years. If you are approved, you are able to receive all of the money upfront and push your payment back until you’re in a more financially stable position.