If you need to supplement your budget for everyday spending, you have a choice between taking a personal loan or settling them using your credit card. Both options provide access to money for many major expenses, like home repairs, appliance or gadget purchases, or even vacations.
The main distinction between personal loans and credit cards is they offer different types of credit. In the case of credit cards, it has a limited amount of revolving credit that can be used as needed. Your monthly payments will then be based on how much your outstanding balance is at a given time. Credit cards are issued by banks and similar financial institutions.
On the other hand, personal or cash loans are a type of loan with set repayment terms and a pre-identified repayment period. This means you receive money in a lump sum and repay the loan according to the terms set by the creditor. Typically, the cash loans Philippines residents can get are from banks, financial institutions, online lenders or fintech platforms.
Depending on what you need the money for, you can take advantage of either option. To understand what would best support your financial needs, it’s best to learn the advantages and disadvantages of taking a personal loan and using a credit card.
Benefits of Personal Loans
In certain situations, personal loans are the best option for you due to their different benefits, including:
You Can Spread Out Large Purchases over a Specific Period
Cash loans allow you to borrow money more than your credit card limit. You can then repay this loan over a certain period. In most cases, the lender will give you the freedom to choose the payment terms or the term length that best works for your budget. The interest rate is then based on your credit score, how large the loan you’re taking out, and how long it will take for you to pay it back.
Basically, personal loans come in two main types: installment loans and non-installment loans. With installment loans, you pay off the debt in even payments over a set period of time, while with non-installment loans, you will have the advantage of paying off what you owe in a lump sum at a set date in the future. With these factors, it’s easier for you to prepare your budget and manage your debts better.
You Can Use Them for Different Purposes
Since cash loans are personal loans, you can decide how you want to spend the money you borrow. Often, individuals take out personal loans when they need a fairly large amount to purchase a new gadget, make home repairs, supplement their travel budget, or enhance their current cash flow.
Disadvantages of Personal Loans
Like any financing option, personal loans have some drawbacks such as:
They Often Come with Additional Fees
Many personal loans have an initial processing or service fee that you need to settle on top of the monthly fixed amount. This fee is typically small, but it can vary depending on the lender. However, do note that there are also some online lenders who don’t charge a processing fee. Look for these providers so that you can make the most of your loan.
Like other loans, cash loans also charge a late fee if you miss your payment deadline. In contrast, completely paying off the entire loan early can incur additional charges. This means that you’re bound by the terms or risk paying more than the initially agreed-upon amount.
They Don’t Offer Any Rewards
Taking out personal loans doesn’t provide any additional rewards, like loyalty points you can later use to make a purchase. This is one thing you’ll miss out on when you opt for a loan instead of using a credit card.
Advantages of Credit Cards
Many people enjoy using credit cards as an alternative payment method when buying all sorts of stuff. This is because of benefits like the ones below:
They Are Best for Frequent Small Purchases
The main advantage of using your credit card is that it’s a great way to settle frequent and small expenses that you can pay off quicker. Credit cards are also convenient options when you don’t have cash on hand, giving you more freedom in your purchases.
If your credit card doesn’t require an annual fee, all you have to settle is the balance for each month. Typically, credit card companies only charge an interest fee when you carry a balance from the previous months. This is why it’s best to pay off your entire bill before the due date.
You Can Access Special Rewards
Many credit card companies offer ways you can earn different types of rewards, including airline miles, cash back benefits, and exclusive discounts. Also, some credit cards allow you to earn bill rebates which can later be used to settle part of your balance. This provides you with more ways to cover your expenses.
Drawbacks of Using Credit Cards
Although using credit cards is beneficial, it has some disadvantages as well. These include the following:
Your Credit Limit Dictates How Much Money You Can Borrow
Every credit card holder is given a specific credit limit, which is the maximum amount they can charge to the card. When you go over your credit limit, your purchase can get declined or you may need to settle an additional fee. Sometimes, the issuer may increase your interest rate and temporarily reduce your credit limit.
It’s Easy to Abuse
The ease of buying items with just a swipe of your card can be a credit card’s main disadvantage. This often happens when you don’t manage your purchases and don’t pay the credit card balance in full. When you only settle the minimum payment, interest rates incur. If you keep doing this, you could end up paying the same amount for years, given that you don’t make any additional purchases.
Taking out personal loans or paying through credit cards are both effective ways to finance your expenses. As a borrower, you need to understand what each option can offer and at what costs. This way, you can assess what type of loan product would best suit your needs and budget.
