If you are considering whether to apply for a loan or use your credit card to finance a big purchase, you need this article to help you decide.
Here are some facts that you need to know:
Credit card interest rates are higher than personal loans
The average interest rate is around 3.5% monthly. It may seem small but when you use your credit card for 12 months, you pay for 42% per annum. If you fail to pay your balance every month, the interest is compounded month after month. It results in a massive amount of debt.
A personal loan charges up to 20% annual percentage rate (APR) which is incorporated into the amount you borrow. Each month, you pay a fixed amount for your loan.
Credit card debt can affect your budget
Admit it, the computations of your credit company sometimes confuse you because of constant adjustments in your bill. The unfixed terms make you worry about your next bill.
On the other hand, you can easily fit in your payment to your budget because you know the exact amount. It allows you to plan your monthly budget effectively.
Credit card late payment charges are much higher than personal loans
When you miss your monthly credit card payment, the late payment charge can be as high as 6% of the amount due. Together with the interest rate and the balance you need to pay, this can be disastrous to your budget. If you do not pay in full, your credit card debt will grow huge rapidly.
Meanwhile, on a personal loan, there is a fixed amount of late payment fee that will charge for every month you miss paying on time.
Use credit cards for small and basic necessities. But, make sure that you manage your finances well to avoid enormous charges. For investment purposes or projects, apply for a personal loan.