Table of Contents
- 1 Credit card vs. Personal loan (Pros & Cons)
- 2 Pros of using credit cards
- 3 Cons of using Credit cards
- 4 Personal Loans
- 5 The pros of using personal loans
- 6 Cons of using personal loans
- 7 COMPARISON BETWEEN CREDIT CARDS AND LOANS
- 8 Circumstances to use credit cards and when to use personal loans
Credit card vs. Personal loan (Pros & Cons)
In life, we are all subject to contingencies. At one point or another, someone is confronted with a problem or an emergency that require an urgent financial breakthrough. In other cases, one may find a product for personal or home improvement without having actual cash at that specific moment. One may also wish to begin a new business or add some stock to the existing. In such cases, the option that can save is the use of a credit card or applying for a loan.\
To begin with, a credit card should be used very minimally.
Pros of using credit cards
a) Allows purchasing easier and gives one the purchasing power
Credit cards simplify buying of commodities. Most companies, airlines, hotels and some supermarkets do not allow cash purchases but allow only credit cards. It is advisable for people who do not like carrying large amounts of money
b) Most credit cards have bonuses.
They offer discounts from bulk buying as well as continuous buying. Some of them even offer special insurance.
c) Very helpful in times of emergencies.
They are easily available and can be used in case of emergencies such as car breakdown or fire.
d) Allows protection of purchases.
Credit cards allow additional protection for items bought, damaged or stolen. In case one loses their original receipt, credit card statement works as evidence of payment.
e) Consistent use of credit cards builds a credit line.
The good credit history is very important, especially when applying for loans, rental applications as well as job applications.
Cons of using Credit cards
a) Causes temptation of overspending
Apparently, credit cards encourage people to spend more than you have. They allow people to spend more than what they have in their account. During spending, this looks like free money, which is however repaid.
This means that if they are not wisely used they can result in financial burden.
b) They have high-interest rates.
Credit card companies charge very high interest rates especially in a case of delayed payments. This is unlike personal loans.
c) Credit cards are subject to fraud
Credit cards may be stolen, physically or someone may get your card number and use it to pay off their debts.
The pros of using personal loans
a) Loans are always accessible and convenient
Banks are always accessible as they work regularly with customers withdrawing and depositing their cash.
b) Banks offers loans at lower interest rates.
Unlike other financial lending agencies such as credit cards, banks offer their loans at lower rates.
c) Some bank loans enjoy tax relief.
Small businesses taking loans enjoy tax relief as some of the profit from the loan is exempted from tax
d) Banks offers multiple loan options.
The potential entrepreneurs can then choose the most appropriate one for them.
e) They give loan applicants the purchasing power.
Loan applicants are able to get a chance to begin businesses or buy their commodities of need, which would not have been possible.
Cons of using personal loans
a) Difficulty in getting loans
Banks have lengthy application procedures for obtaining loans making it difficult.
b) Personal Loans are cumbersome.
Banks demand a lot very unnecessary information before giving out loans.
c) Preferences is normally given to running businesses
Already existing businesses are considered as they are already making profits and have a good credit history.
d) Banks do not offer the entire amount applied
Normally, banks disagree to offer the actual requested amounts and instead give part of it. This may cause a lot of inconveniences as most people apply for only the required amounts.
e) Many conditions for loan qualification.
Banks have a long list of conditions for loan qualification.
COMPARISON BETWEEN CREDIT CARDS AND LOANS
a) Credit cards are used for urgent activities especially emergencies whereas loans are used for businesses.
b) Credit cards have very high interest rates, unlike bank loans, which have a comparably lower rate.
c) Credit cards are unsecured whereas bank loans are secured and are backed by collateral.
d) Money in credit cards is used in small bits whereas, in bank loans, the money is given out as a lump sum and can be used at once.
Circumstances to use credit cards and when to use personal loans
Credit cards should only be used for short-term financing such as daily bills. When using them one has to ensure that they do not spend off their budget and never dispose credit card information to other people. Remember that having unlimited purchasing power can be harmful unless one is very keen.
Loans are suitable for long-term financing such as starting a business or adding stock in a business.
For people with a consistent source of income, personal loans are better.
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