When you are considering borrowing money, you need to make a decision as to which is the best option. Should you apply for regular loan or should you make use of the available funds on your credit card?
The first thing to consider in these circumstances is how much money you need to borrow. If it is a large amount of money then certainly, applying for a loan will be the better option. Many modern credit cards offer very attractive rates, but there is a limit to how much is available on your card.
In addition, if you wish to buy a 'big ticket' item, many sellers of items such as cars, will not accept credit card payments for such a large transaction. Items like this should realistically be paid for with a conventional loan.
There are two types of loans available; one is a secured loan, which generally requires that the lender place the charge on your house as security against payment. Items such as cars can often be purchased using an unsecured loan or a loan that is secured on the vehicle, rather than on your home.
The major difference between secured and an unsecured loan is that a secured loan will give a larger amount of credit and a much lower rate of interest. Credit cards are the most common form of a secured loan available. However, interest rates are generally considerably higher than those on a secured loan.
Secured loans can be flexible, with slight variations allowed in monthly repayments. However, the most flexible of these cannot compare with the options that credit cards offer to make, more or less, the payments that you wish each month.
The regular loan does offer the advantage that you know exactly how much you will be expected to pay each month, and how long will have to pay for. It can be difficult to calculate with credit cards how long you payments will last and how much interest you will pay, because of the infinite varieties of payments can make each month.
Both loans and credit cards offer the opportunity of playing the full amount back at any time. A loan may have penalties for early repayment; there are no early payment charges on credit cards.
A credit card is far more flexible in that if you pay off all or part of the money, you may then automatically re-borrow that money, and use it again. With a conventional loan, you will have to wait until you have repaid the amount you borrowed in full. Then, you will have to make a new application, to borrow any further funds.
Most personal loans carry a fixed interest rate, credit cards, may offer a temporary fixed interest rate, but most cards can vary their interest rates on month-to-month basis if they wish.
Some equity release or debt consolidation loans offer flexible lines of credit. Where you may take out as much or as little as you need at any one time and only be charged interest on the actual amount you have used. Not the available credit that you applied for and have available to you.
This is very similar to credit cards, in that they also only charge you interest for the amount of available credit that you have actually used. The cheapest way to obtain a short-term loan is certainly through a credit card. This method is only cheap, if you pay it off quickly. If you purchase a new TV with your credit card and pay, it off when you receive your next bill there will be no interest to pay. If you pay it off rapidly, within five or six months, the interest rate can be extremely competitive.Once you go over this period, a loan may be a far better option, and if you stretch payments to 12 months then the loan will be far more financially viable.
Some stores that sell goods like TVs may offer 0% or very low interest rates. Unless you intend to pay off your card at the end of the month, this type of loan would be a better alternative.
To summarise, credit cards, work well interest wise, if you pay off the amount you borrow very quickly. If you intend to make gradual payments, a loan, either secured or unsecured will probably be the best option. For 'big ticket' ticket items costing thousands of pounds, a loan is far more preferable and practical than a credit card.
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