Personal Loan vs. Credit Card
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What's the Difference Between Credit Cards and Personal Loans?
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You could use a credit card to pay for some of the things people use personal loans for, but before you decide which financing tool is best for the situation, you should be aware of the differences between how credit cards and personal loans work.
Credit cards
- Higher interest rates in many cases, with significantly higher interest charged on cash advances.
- Late payments can trigger an interest rate increase plus a late fee and finance charges.
- Shorter term to pay off your balance, usually a month or less with most credit cards.
- If your bill isn’t paid in full by the due date, you’ll have to pay finance charges on the total balance on your card.
- Rising balance and monthly payments if you continue to use your credit card for everyday purchases.
- Option to pay only the “minimum due” each month rather than full balance can mean it takes longer to pay off your debt and increases the amount of interest you pay in the long run.
Personal loans
- Fixed interest rate and monthly payments that will never increase during the entire term of your loan.
- Longer time to repay your personal loan (often several years) without additional fees or interest added on.
- When you’re approved, you will receive a check for the total amount you are borrowing.
- Your balance steadily decreases over time as long as you make all your payments, so your debt is not growing.
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