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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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