A new bathroom at home, a brand new car or a pair of smart shoes all require amounts of money quickly to cover expenses. Whatever your needs are when you do not have cash, you have two popular tools for borrowing: personal loans or credit cards.
The best choice for you will depend mainly on the amount of money you need, the time you need to repay the debt and what that money is for. With either option, you get the money you need quickly. However, it is important to analyse which are the pros and cons of each type of loan. By doing so, you can save some money on interest charges and avoid mounting debts.
A personal loan is commonly referred to as an installment loan, which means that you get money in a lump sum and then you pay it back in fixed monthly payments over a specific period –generally somewhere between one to five years. When you take out a loan, you need to know that you will pay the money you borrow back plus interest.
Interest rates on personal loans in South Africa range from 8% to 23% depending on the lender. It is advisable that you check on the interest rates of your preferred bank by using an online personal loan comparator. Besides, personal loans usually offer borrowing limits that can be as high as R100 000.
Comparatively low rates, high borrowing amounts and fixed repayment terms make personal loans a great option for financing large expenses, such as home improvements.
A credit card, on the other hand, is a revolving form of credit, as it allows repeated access to funds. Unlike personal loans, you do not get a lump sum of cash. Instead, a credit card has a credit limit you can charge up to. Credit cards can be an expensive form of financing if you fail to pay off the balance each month because this can result in big interest charges that accumulate over time.
Credit cards do not require you to pay your balance all at once, which might sound enticing. You are given the option of making a minimum payment each month while letting credit card interest accumulate on the remaining balance. That interest is generally double-digit –and not less. However, you can wisely avoid interest charges by paying the full statement balance by the due date.
You can use both methods to meet your financial needs, but the question of whether a personal loan is better than credit card debt or the other way round depends on several factors, including how much money you need, how much time you want to pay it back, and what you’re using that money for.