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Credit Cards vs. Personal Loans: How Are They Different?

When people need money for personal expenses, they usually look at either using a credit card or taking out a personal loan. 

When you need to make a large purchase, a personal loan is going to be your better option. On the other hand, if you need funding for an ongoing project or a small one-time expense like a car repair, a credit card may be your best bet. 

Here we’ll review some of the differences between credit cards vs. personal loans and what situations are best for each. 

Credit Card vs. Personal Loan

Both personal loans and credit cards offer several advantages. Either option provides you with easy access to fast cash, the ability to apply using a cosigner, and the freedom to spend the funds however you see fit. You can take out a personal loan or apply for a credit card from a variety of financial institutions, including banks, credit unions, and online lenders.

However, there are a few differences between the two options as well. While personal loans may provide better interest rates and a way to keep your spending in check, credit cards offer more flexibility and the ability to earn rewards. 

Keep reading to see the specific situations when you should use each financing option for your personal cash flow needs.

Lower Interest Rates: Personal Loan

In general, personal loans provide you with better interest rates than credit cards. While there are exceptions to this rule, like our Low Rate Visa card, personal loans are usually more affordable if you can qualify for a low APR. 

Since the interest rate that you receive on any financial product greatly affects both your monthly payment as well as the total amount that you will pay over time, locking in the lowest rate possible is a very important consideration any time you borrow money.

Easier on Your Budget: Personal Loan

With the fixed monthly payment of a personal loan, configuring your monthly budget is much easier with a loan than with a credit card. Your balance and monthly payment can vary widely when using a credit card, and you may also be tempted to spend above your means. Many people are simply not disciplined enough to have unlimited access to a revolving line of credit.

If you struggle with only paying the minimum amount on your credit card, and are tempted to max them out, a personal loan is a much safer and much wiser way to go for funding large or unexpected expenses. Personal loans offer the peace of mind of having a fixed monthly payment that does not change over the life of the loan.

More Flexible Spending: Credit Card

For everyday purchases and recurring expenses, credit cards are the clear winner. 

Since a personal loan is delivered as a lump sum, it is best used for covering large one-time expenses like a trip or a wedding. When you need access to a revolving line of credit for multiple purchases over time, a credit card is the better way to go. As you pay off your card balance over time, you will have repeated access to your funds up to the credit limit. 

On the other hand, the funds from a personal loan can only be accessed once without having to reapply again for a new loan. If you know that you will need repeated access for ongoing expenses, using a credit card makes much more sense.

To Earn Rewards: Credit Card

If you are disciplined enough to use it responsibly, a rewards card can be a fantastic way to take advantage of credit cards and make your money work for you. 

By charging everyday expenses and bills to your card and then paying off the balance each month, you can quickly stack up some extra cash.

When You Need A Large Amount of Cash: Personal Loans

While some credit cards offer higher credit limits than others, a personal loan is still going to be the better option for access to a large amount of cash. 

When you need to finance a large expense like a home repair or a college education, a personal loan offers a much more cost-effective way to fund that expense than attempting to spread it out over multiple credit cards or using the same card repeatedly.                                                         

Ready to Apply?

If you think a credit card would best suit your needs, selecting the right card is important. Members of UCCU enjoy access to a variety of credit card options with no rate hikes, annual fees, or other surprises. 

At UCCU, every Visa credit card works with your Mobile Wallet and protects you with the latest in chip technology. Click below to learn more and apply today.

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