Personal loan vs credit card: which is better?

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Choosing between a personal loan and a credit card is often tricky because they work in a similar way. However, both loan products have their fair share of positives and negatives and are not likely to be used for the same purpose.

If you’re having trouble figuring out why a credit card or personal loan would be better for you, this article will help you sort out the details.

What is a personal loan?

If you are currently compare personal loan rates in Australia, you have probably realized that they do not require any assets or collateral before approval. Since personal loans are unsecured, you can apply for one and get approved within 24 hours.

Personal loans provide a fixed amount of financing that the debtor repays in installments over a period of time ranging from a few months to several years.

Loan amount: Define

The biggest difference between a credit card and a personal loan is that they are approved for a fixed amount. With a personal loan, you receive a lump sum at the start of the loan term. These funds act like revolving credit, so debtors won’t have to ask for more money later.

Interest rate and repayment terms

Personal loans often have higher interest rates than secured financial products, but they won’t be as high as a credit card.

On average, most Australians will pay 14.41% for a variable personal loan and 12.42% for a fixed personal loan. While you have the option of paying less interest with a variable loan, you can more easily keep track of your payments with a fixed term.

Variable rate loans also give the borrower access to a repurchase facility, which is an initial down payment on the loan that you can withdraw to use when you really need it.

Fees and charges

Personal loans will come with an application fee, but that’s how much you will pay.

What is a credit card?

Borrowers will use a credit card build credit over a short period of time, but credit cards are much more useful than that. Credit cards are another unsecured loan product that allows the borrower to access funds up to a specific limit. It can be used for daily expenses, such as small purchases or monthly bills, which the borrower can pay off each month.

Loan amount: flexible

Credit cards offer the borrower a lot of flexibility as they act as a line of credit and an endless amount of money loaned out provided you have good credit.

Unsecured credit cards can start at $ 500 (on student cards) and can run into the millions. While personal loans have a limit on how much you can spend, credit cards allow you to spend up to your available balance.

Be aware that credit card debt is considered “revolving,” which means you could end up in serious financial trouble if you don’t watch your spending habits. It is better to apply for a credit card that matches your spending habits rather than prioritizing the money you would like to have.

Interest rate and repayment terms

A loan is expected to have a high interest rate, typically 18.99-21.99%, which is much higher than personal loans. To avoid paying penalty charges on your credit card, you must complete a minimum monthly payment. To forgo your interest rates, pay off the card balance.

Fees and charges

Most high value credit cards will charge an annual card fee. Almost all credit cards will charge you additional fees for a cash advance or when you transfer between loan products.

Personal loan vs credit card: which is better?

If you are in control of your spending habits, a credit card is best for small purchases. However, if you are looking to purchase a more expensive item, a personal loan is worth checking out.


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