You never know when a financial emergency might happen, and around 40% of American adults don’t have an emergency fund saved.
Even if you’ve been working hard to build your savings, you might not have enough to cover everything. This might leave you trying to decide between personal loans vs credit cards.
Keep reading to learn more about the pros and cons of each and which might be the best option for you.
Personal Loan
A personal loan is ideal for situations that involve a considerable expense that you will need a lot of time to pay off. They usually have a lower interest rate than a credit card, but it depends on your credit score. Personal loans are also good if you have trouble controlling your spending because they don’t allow you to borrow more money than the original amount agreed upon.
Personal loans will help you build credit as long as you make your required payment on time each month. They also have a fixed rate, which means you won’t have to worry about your payments fluctuating over the loan duration.
The downside to personal loans is you have a set amount of time to pay them off, generally around 36 months. This means your monthly payments will be higher than with a credit card. You also won’t be able to immediately access the funds since you have to apply and then wait for approval before getting the money.
Credit Cards
Credit cards have the advantage over a personal loan if you already have the card and need access to funds immediately. If you don’t already have a credit card, applying for one is simpler than ever online. The downside is that you’ll still have to wait for your card in the mail before you can use it.
Many credit card companies have great introduction deals such as 0% interest periods on new purchases or balance transfers. If you pay attention, you can pay your balance off before the introductory rate expires and avoid paying interest altogether.
If you have bad credit, you might not qualify for a personal loan, but you might get approved for a secured credit card. This is only helpful if the amount of money you need justifies the cash deposit that you will need to use as collateral.
Using a credit card during a financial emergency might not help you if you need cash. Most credit cards have a cash advance limit and have expensive fees as well. Also, if you have a problem with overspending, a credit card might keep you in a cycle of debt, making it hard to reach any goals you have for building your savings.
You can reach out for some expert advice if you are still unsure which option is best.
Learn More About Personal Loans vs Credit Cards Today
It might be tricky deciding between personal loans vs credit cards, but the decision comes down to your personal situation, how much money you need, and how quickly.
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