Is a personal loan better than a credit card?

There are many different types of finance available these days to consumers in the UK, and amongst the most popular forms of finance available are credit cards and personal loans. Essentially both of these forms of finance provide you with the same thing, which is access to money.

However, there are some key differences that will determine which is the most suitable for your needs and your circumstances. With regards to whether one is better than the other there is no real answer to this, and this is because whereas a loan will prove better in some cases a credit card may prove better in others.

Credit cards have been popular in the UK for many years now, and these cards offer a range of benefits to cardholder, including the ease and convenience of being able to make purchases with plastic, not having to carry cash around, and being able to buy items by phone or online.

There are many different types of credit cards around these days with something to suit most needs and circumstances. Amongst the benefits associated with credit cards are:

• Ease and convenience, as you can avoid carrying a cheque book or cash around, you can use these cards to make purchases online and by telephone, and you can use these cards when travelling overseas.

• Flexibility, as you can enjoy either making purchases on the card and then repaying the balance on the card in full each month, or you can make purchases on the card and then spread the repayments over a period of time.

• Affordability, as if you repay your balance in full each month you won’t have to pay a penny for the use of your card unless you have used it for cash or foreign transactions. You can also get specialist cards such as 0% purchase or 0% balance transfer cards that enable you to enjoy periods of interest free credit.

• Choice, as there are many different credit cards to choose from, including rewards based cards, cards for those with poor credit, and interest free cards, amongst others.

• Protection, as when you make a purchase on your card either in the UK or abroad, you are protected within certain limits if the purchase is damaged or undelivered.

• Benefits, as many cards offer rewards such as cash back, charity donations, discounts, air miles, and other rewards.

There is also a downside to credit cards, and this includes:

• The risk of spiralling debt for those that cannot control spending on the card.

• The risk of being in debt for long periods for those that make just minimum repayments on the balance.

• High interest rates on many cards for those that do not repay their balance in full each month.

• Costly fees and charges for late repayments, missed payments, exceeding the credit limit, and for foreign transactions, cash transactions, and transfers where applicable.

• Increased risk of fraud for those that are not careful with their card details or those that have the card stolen.

Personal loans also have their pros and cons. You can get personal loans from a wide range of lenders from high street banks to Internet only lenders. Amongst the benefits of taking a personal loan are:

• You can usually enjoy more credit with a personal loan than a credit card, but this is based on financial and employment status amongst other things.

• You can always place your personal loan in the bank and use your debit card to increase convenience and ease if you don’t want to carry cash around.

• You can enjoy fixed, structured repayments with a personal loan, and providing you keep up with these repayments you will know exactly when your loan term will end.

• You can enjoy a choice of lenders and some very competitive rates of interest on personal loans providing you shop around and compare.

• Enjoy fixed interest rates and a choice of repayment periods to suit your needs.

On the downside:

• You may pay more each month on your personal loan because there is no such thing as a minimum payment – you make the same fixed payment each month, so there is little flexibility when it comes to repaying the loan.

• You may find that you cannot get an unsecured personal loan if your credit is damaged, as most lenders offering unsecured personal loans will not lend to bad credit consumers, and those that do charge extortionate rates of interest.

It is important that you assess your needs and your repayment habits before your determine whether a credit card or a personal loan is the best choice for you.

For example, if you simply want financial back up when going on holiday in case of emergencies then a credit card may prove ideal. However, if you need to raise a certain amount of money to pay for something like a holiday or wedding then you may find that a personal loan is the best choice