Personal Loans vs Credit Cards: the pros and cons

When you’re navigating the world of finance, understanding the difference between credit cards and personal loans is essential. Both options can give you access to valuable funds and help you build your credit score, but, if managed incorrectly, they can also have negative implications for your credit report. 

At Fix My Credit, we’re specialists in credit repair and work closely with individuals who have found credit card or loan debt challenging. 

Personal loans

Personal loans can be used for various purposes such as large purchases, consolidating debt or funding a project. Unlike credit cards, personal loans lend you a fixed amount of money that is to be repaid over a certain time period through regular instalments. Generally, personal loans have lower interest rates than credit cards when you have a good credit score.

Pros: 

• Money is available in a lump sum.
• Scheduled fixed payments.
• Usually a lower interest rate than credit cards.
• Good for big purchases. 

Cons:

• Normally includes extra fees (service fees). 
• One-time credit amount.
• No rewards. 

Credit cards

Credit cards are different from personal loans and offer a revolving credit that allows you to borrow up to a limit that you decided when applying for the credit card. Credit cards offer more flexible payment options than personal loans, where you can pay anything from the minimum monthly repayment to the full balance each month. 

Credit cards utilise various methods for calculating and accruing interest. Some credit cards offer you the advantage of a statement cycle grace period, during which no interest is charged on the borrowed funds. This means that if you pay off the entire balance within the specified period, you will not incur any interest charges.

On the other hand, certain credit cards employ a daily interest calculation method. With this approach, interest is calculated and charged daily, and at the end of the billing cycle, a final interest charge is applied.

Understanding how your credit card handles interest accumulation is critical in making informed decisions about borrowing and managing your credit card balances effectively.

Pros: 

• Ongoing credit if paid off.
• Opportunities for credit increases.  
• Rewards and bonuses. 

Cons: 

• Generally higher interest rates than loans. 
• Interest and fees can accumulate causing debt if not paid. 

Personal loan and credit card approvals

When it comes to getting approved for a personal loan or credit card, banks and other financial institutions consider various things. One of the key factors they look at is your credit score, which plays a significant role in their decision-making process. Your credit score is determined based on your past credit history, including things like any defaults, inquiries, open accounts, and outstanding balances you may have had. This score carries a lot of weight and can greatly impact whether you get approved for credit and at what interest rate.

Bad credit score? Contact Fix My Credit today!

Improving your credit score with personal loans and credit cards

While paying with cash is a great option, credit cards and personal loans can benefit your credit score if managed responsibly. To ensure your loan or credit card has a positive impact on your credit score: 

• Always pay your loan repayments on time.
• Always pay your credit card bills on time, whether it’s the entire balance or a large repayment. 
• Find a credit card with low interest rates that suits your spending habits.
• Shop around to ensure you’re getting the best interest rates with personal loans.

If you find yourself struggling with your personal loan repayments or credit card debt, it’s important to take action right away to ensure it doesn’t affect your credit score. By seeking professional advice from Fix My Credit, we can help you develop a plan to manage your debt and negotiate with lenders on your behalf to manage your credit health.