There are several reasons why you might want to take out a short-term loan or credit card. Perhaps you need to pay for an emergency repair, spread the cost of a big purchase, or consolidate your debts into one lump sum to clear them more quickly. Whatever your reason, it’s important to choose the right option for you. While both of these borrowing types will provide you with the money you need, there are significant differences between the two.
Loans and credit cards: a quick comparison
Credit cards are a type of revolving credit. This means that you can borrow money, repay some or all the debt, then borrow money again. Short-term loans are more structured in that you can receive a lump sum of cash and then repay it with interest over time. Short-term loans allow you to pay the money back over several months. Credit cards are ideal for borrowing money regularly and paying it off each month.
Advantages of loans over credit cards
There are some big advantages to choosing a short-term loan over a credit card. One of the greatest is that they’re so easily accessible. They’re readily available online via several direct lenders’ websites as well as broker portals. What’s more is that anyone can apply for a short-term loan, even if they have bad credit. You might be denied a credit card if your credit score is low, but you may still be approved for a loan if you have a regular income and you meet other lending criteria.
Another advantage of short-term loans is that you’ll usually receive an instant decision. If you’re approved, the money you need will often be transferred into your bank account within a matter of minutes. This makes them ideal for emergency borrowing, giving you the cash you need right away. So, whether the family car has broken down or you need to pay off your optician’s bill today, a short-term loan could be a good solution. They can help you sort out a cash flow problem without filling out long forms or waiting weeks for approval. You can apply online in a few clicks, making them ideal when you need a loan for a few months.
Short-term loans allow you to borrow cash sums from as little as $150. You can apply for the exact amount you need and then repay it with interest over the agreed term. This not only means you’re less likely to borrow more than you need, but it also makes managing the debt a straightforward process. With credit cards, you only need to make the minimum interest payment each month. This means you need to be disciplined if you want to pay off the debt before the interest-free period ends. Another downside of credit cards is that you don’t know the precise amount you’ll be offered. If you need a specific amount, your credit limit may fall short.
Advantages of credit cards over loans
As well as being ideal for regular spending and borrowing lower amounts, credit cards are also a good option if you’re not sure how much you need to borrow, or you require more flexibility on repayments. They’re a flexible line of credit that let you spend any amount up to a set credit limit. When the statement period ends, you can pay off an amount between the required minimum payments and the full balance.
Many people turn to credit cards because they often come with interest-free repayment periods. These 0% interest cards allow you to spread the borrowing cost without paying any interest. They can be very tempting, however, it’s important to pay off your balance before the interest-free period ends. You should also keep in mind that interest-free credit is usually only accessible to people with good credit. If you have bad credit, you’re unlikely to be approved for one of these cards.
If you borrow a small amount on a credit card, the interest you’re charged is still likely to be lower than the interest charged on a loan. This is because short-term loan rates on low amounts tend to be significantly higher.
A big advantage of credit cards is that they often come with purchase protection. Consumers can file a claim on eligible stolen or damaged items which have been purchased with the credit card. Majorcredit cardproviders, including Mastercard andVISA, all have different policies forpurchase protection. So it’s worth taking a closer look at these before opening a new account.
Whether you choose a short-term loan or a credit card to borrow the money you need, it’s a good idea to look around the for the best deal. It’s also crucial that you make regular payments towards your debt. Making late payments or defaulting can damage your credit score, making it difficult for you to get the credit you need in the future.
Photo Credit: stock photo