If you are looking into different options how to fund a project, you probably came across the question: is a personal loan better than a credit card? This is one of the toughest questions presented to everyday individuals: being able to distinguish if a revolving payment, like a credit card, is better for a project than an installment debt payment, like a personal loan.
If a project or unforeseen expense can’t be covered with the money in your savings account, it’s important you take the time to consider which payment method makes sense for you in the long run. Normally, credit cards are saddled with higher interest rates than personal loans. These cards can be an excellent option for the initial 8 to 12-month period, but once that time cap passes, the rates can spike dramatically. For a larger, more expensive project, you want to consider a personal loan with a pre-stated interest rate that won’t blindside you when it takes 5-years to pay off the project.
Is a Personal Loan Better Than a Credit Card?
When deciding what payment plan option may be best for you, consider these 5 instances. In all 5 is the personal loan better than a credit card as a way to get the cash you need for all below projects.
1. Business Founding
There’s a lot of uncertainty during the startup of a business. Will it fail in the first 2 months or succeed? Lenders have a hard time telling. As such, they’re going to hit you with impossible interest rates through credit cards. With a personal loan, you can tailor the terms of the loan to minimize your risk.
2. Healthcare Emergency
Unexpected healthcare expenses can be unimaginable today. If you’re hit with a medical bill that is mind-blowing, it’s wise to take out a personal loan on favorable terms to pay it off with.
3. Debt Consolidation
Sure, you can use a credit card to consolidate your debt, but once that debt has grown to certain size, it becomes near impossible to pay it off during the initial promotional period. When this period is over, the interest rate spikes. A personal loan will be more forgiving when it inevitably takes you 4-years to pay off the debt.
Did you know it cost couples an average of $35,000 to plan and host a wedding? As your special day, you probably don’t want to cut corners with costs. By devoting your wedding expenses to a personal loan, it will be easier to help you budget and determine the best payback period given the variety of expenses at the time.
5. Home Development
Home improvement projects require a lot of planning and budgeting before they become reality. The timeline can be extensive, which is why the personal loan is preferred in this case. The dollar values can be so high that a credit card is just plain impractical given the size of your undertaking.
Each Case is Unique
Do note that even though these 5 scenarios lend themselves to personal loan withdrawal most of the time, that doesn’t mean a personal loan is the answer every single time. Make a decision based on the analysis of your situation, cash at hand, budgeted timeline, and the total time you predict it will take you to pay off the project. Spend time comparing interest rates and repayment periods available to you given your credit score, plus the total debt load.