Personal loans and credit cards are both financial tools accessible to salaried and self-employed individuals to get funds to manage their finances without redeeming savings and investments. A credit card comes with a credit limit that allows you to swipe your card and avail of the benefits, whereas an instant personal loan is an advanced form of unsecured loan. You can instantly borrow funds from lenders from the comfort of your home.
Getting an instant personal loan online is easy and gives quick results. However, provide some identity and financial documents to avail of a loan. In comparison, getting a personal loan requires a little more work than simply getting a credit card.
There are still times when a personal loan can be a better option than credit cards to access instant money and pay for your expenses. There are two scenarios when getting a personal loan is a better option than using a credit card.
2 Scenarios When Instant Personal Loans Better Than Credit Card
- When you want to consolidate multiple debts
Taking multiple debts and not repaying the loan amount on time could jeopardize your credit score and attract debt traps. Debt consolidation is when you want to combine all your debts into one monthly payment, and a personal loan makes it possible. The benefit of debt consolidation is that you can lower your interest rates by opting for a single loan.
Paying multiple minimum credit card debt every month can become a burden on your finances. A word of advice: You should consolidate your debts only if the personal loan you are opting for lowers the interest rates that you are already paying. A lower interest rate means you are closer to getting out of debt.
You can also consolidate your debt by transferring the balance of multiple credit cards to another card, but unfortunately, balance transfer cards come with a credit limit. Typically, you can transfer more than a few thousand rupees of debt to a balance transfer card. Therefore, an instant personal loan online can be your savior when you want to consolidate your debt.
- When you want to increase the loan repayment time
Under normal circumstances, the interest rates payable on credit cards can be very high. Paying high interest means that you will have to compromise your savings. Nonetheless, if you pay off your credit card bills within 30 days of your purchase, you will not have to incur any interest rate. It is the late payments that attract higher interest. So, you can avoid paying credit card interest if you pay off your credit card balance in full.
On the other hand, a personal loan amount can be repaid in EMIs over several years rather than months, and the interest rate on it is usually lower than the standard rate on credit cards. If you want more time to pay your debt, a personal loan is a better choice than any other unsecured loan.
You will save money by paying a lower interest rate, and you know how much you need to pay every month and how long. Another benefit is that you can find out how much your loan is costing you in EMIs so that you know the interest rate you’re paying is worth it.
If you have the flexibility to choose a repayment tenure, and you know the amount you need, you can easily make an informed decision on whether to choose a credit card or a personal loan.
Plan your Finances well with a Personal Loan Calculator
Planning your finances becomes paramount because you have to repay the loan amount with interest. Before applying for an instant personal loan online, you must evaluate your needs and determine how much you can afford to repay in EMI. One way you can calculate your EMIs is through a personal loan calculator.
Personal loan EMI calculator is an online financial tool to help you figure out an EMI amount based on your needs. There are three main components of a personal loan calculator that you will need to add to determine your EMI, such as the principal loan amount, the interest rate, and the repayment tenure. You can alter their values as many times as you want until you reach an affordable EMI amount. Keep in mind that interest rate, loan amount, and loan tenure depend on factors like your credit score, income, etc.
Although both personal loans and credit cards can offer financial assistance to borrowers, a personal loan always wins the race when it comes to debt consolidation and longer loan tenure.