Should I Get Another Credit Card or Apply for a Personal Loan?

Life happens—whether we’ve prepared for it or not. Your roof needs urgent repairs, you’ve been invited to your friend’s destination wedding, or you’ve been hit with a surprise medical bill. In these and many other cases, you’ll likely turn to credit as a way to finance a purchase.

But what type of credit should you choose? For many people, the decision comes down to either a personal loan or a credit card. While these are both excellent options in many situations, there are a few cases where one is the clear winner.

When You’re Making a Smaller Purchase

Verdict: Credit Card

When you’re making a smaller purchase (less than $4,000 or so), your best bet may be to turn to a credit card. Personal loans typically start at about $5,000 (as in, you wouldn’t be able to borrow anything less than that), so they’re often best saved for larger purchases. That said, some lenders do offer loans in amounts under $5,000, so it wouldn’t hurt to do a little research into both options.

When You Need More Time to Repay Your Debt

Verdict: Personal Loan

Though it’s true that credit cards don’t require you to pay your balance all at once, failing to pay enough towards that balance each month can make the interest charges pile up over time. How much interest you accrue comes down to your card’s APR, which is likely to be higher than that of a personal loan. In general, credit cards should be used for purchases that you can comfortably repay within a year.

A personal loan, on the other hand, is typically repaid over the course of two to ten years, meaning your payments are likely to be lower with an interest rate to match. This is an excellent option for more substantial purchases that you wouldn’t be able to repay quickly.

When You Need Credit Fast

Verdict: Credit Card

If you already have a credit card available to you, you’ll of course be able to borrow immediately. But applying for a new card can be just as quick, with some banks allowing you to use a virtual card immediately after approval while you wait for your physical card to arrive. When you need credit quickly, credit cards are the way to go.

That said, if a credit card doesn’t fit your situation based on the other factors here, getting a personal loan can be a simple process too. Many online lenders offer quick and easy applications that can be completed on a laptop, tablet, or even a smartphone—some in just a few minutes—with offers delivered soon after. At Credit Direct, you could have money in the bank as soon 24 hours after your application has been approved!

When You Need to Consolidate Debt

Verdict: Personal Loan

Debt consolidation is an excellent financial strategy to help you save on interest and ultimately achieve freedom from debt. There are a few routes you can take, but the two most popular are credit cards (by way of balance transfers) and personal loans.

With debt consolidation via credit card, you’ll open a new credit card whose issuer pays off the balance on your old debt(s). That balance is then transferred to the new credit card, where you then make payments moving forward. Typically, you’ll want to do this only if the new credit card has a no-fee balance transfer offer and/or a significantly lower interest rate compared to your other debt—otherwise you’ll end up owing more than you did in the first place. However, even if the fees and interest rates on your potential balance transfer look good, this method can still turn out poorly. Because credit cards are what’s known as revolving credit, debt consolidation via credit card could end up adding years to your payoff timeline if you keep using the card while trying to pay it off.

With debt consolidation via personal loan, you’ll know all the costs upfront: the amount you’re going to borrow, the cost of interest, and all fees attached to the loan. Additionally, your payment stays the same each month, making it easier to budget for. In many cases, personal loans could also be a less expensive choice. While some credit cards offer low introductory rates—for example, no interest on your balance for the first year—failing to pay off the balance in that time can see your interest charges skyrocket. A personal loan has a fixed interest rate, which means no surprises in the long run.

When You Don’t Have Much Credit History

Verdict: Credit Card

Without a relatively long credit history, it might be [tough to get a personal loan] (link to “Why a Good Credit Score Doesn’t Guarantee a Loan Approval” CD post). Many credit card companies offer secured credit cards or other “starter cards” for those looking to build credit. Practicing good financial habits with these types of cards can be a great way to quickly build enough credit to apply for a personal loan later, should you need one.

When You’re Worried About Being Stuck in Debt

Verdict: Personal Loan

Credit cards are both convenient and tempting, which means that they’re easy to swipe and forget about—until your monthly bill shows up. For many who struggle to manage their finances, this can be a recipe for an endless cycle of debt. Choosing a personal loan for substantial expenses lets you focus on making one consistent monthly payment on predefined terms, eliminating the possibility of things getting out of hand—and making achieving financial stability that much easier.

Make an Informed Decision

Whichever option you choose, make sure you pick the one that’s right for your unique financial situation. That’s why Credit Direct makes it easy to explore your options. You can apply online to check offers from us and our trusted lending partners in just minutes—and receive funding in as little as 24 hours! Our loan agents are here to help you find the option that not only lets you pay for that unexpected expense, but also the one that makes long-term financial sense for you.

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