Whether you’re planning on buying a new car, phone, house or another long-term purchase, the final cost can seem daunting. It makes options such as personal loans and credit cards the most attractive. But when it comes to personal loan vs credit card, which one is better for long-term purchases?
Let’s look at the plastic card option first.
How do credit cards work?
Credit cards are a good way to get money quickly if you’re short on cash. They allow you to spend any amount from a hundred to several thousands of dollars up to a credit limit your provider sets you.
You can even avoid paying interest if you pay your bill in full each month; however, this can be a risky game. Losing track of spending is easy to do, and if you’re planning on putting money towards your dream house, it’s unlikely that you would be able to pay all of this back within a month.
This means APR, or interest, which can reach up to 50% (!!), is charged per month. That means you could end up owing a lot more money than you originally intended, and even perhaps end up in debt.
By this point, you see that using credit cards for short-term spending may be more beneficial than long-term purchases.
So, what about personal loan vs credit card?
Personal loans work slightly differently than credit cards. Instead, a lump sum is paid at the beginning of the term, and a finite time frame is set up with agreed monthly payments until the original loan has been paid off.
This setup has its advantages. For example, whereas at first, it may seem a credit card has more flexibility, knowing how much money you have to spend means you are much less likely to spend more than you can afford. The structured set up for repayments also means you can plan much easier how much money needs to be set aside.
All of which helps you to avoid debt and enjoy your new purchase without worry. Especially when other things such as children, pets, and bills give you enough to think about.
Is there anything else I need to know?
With personal loan vs credit card, interest is going to come into play. As mentioned before, APR for a credit card can be steep, whereas with a personal loan, it can vary depending on how much you take out, as well as the timespan for repayment.
The longer the time, the more you will end up paying in total, but the less you will pay per month with that loan. Thus, it becomes easy to plan around the other things going on in your life, and decide which suits you best.
A lot of personal loans companies offer tools that give you an idea up front of how much a loan would cost for you, both per month and in total. All of which makes it easy to plan in advance.
When it comes to long-term purchases, it’s important to research your financial options to determine which is best for you and your family.