Personal Loans Beat Credit Card Financing

Though credit cards are a popular way of financing purchases, truth is that they are also an expensive way of financing purchases. The interest rates charged by credit cards can double the rate charged for personal loans. Sometimes, even the rates charged by bad credit personal loans are lower than the rates charge by credit cards.

Moreover, the interest rate is not the only reason why credit cards can be more expensive. Credit cards tend to encourage spending. Since you are only required to pay a minimum payment that usually consists only of interests, you feel you can keep spending as you can afford the monthly payments. But ultimately, the accumulated debt will turn out to be really expensive.

Credit Card Financing

Credit card financing is usually the first choice for anyone making a purchase. The use of a credit card solves the problem of having to carry large amounts of cash or having to write out checks that are not so immediate. Credit card financing is just like a line of credit only it is associated with a plastic card that offers immediate access to the funds everywhere thanks to a global network.

With the use of a credit card you can either purchase a product in full and decide the amount you will finance each month when your credit card balance arrives having the option to pay even the minimum amount required that consists only of interests and a small portion of the principal or you can obtain finance from some stores that agree to charge you small installments with an interest rate already calculated in the amount of the monthly payments. Each Month, the store charges your card with the installment till the product is fully paid.

Advantages Of Credit Cards

The main advantage credit cards offer is their flexibility. Besides the easiness and comfort they provide by eliminating the need of cash or carrying checks and remembering account numbers and such, it is widely accepted in almost every store in hundreds of countries.

Besides, when your credit card balance arrives, you do not need to pay all the balance in full, you can pay a portion (at least the minimum payment required) and finance the rest. The next credit card balance will have the unpaid balance of the previous month and any new purchases you may have made during the current month.

Personal Loan Advantages

However, the interest rate charged by credit cards is high. It can sometimes reach even 20% which is extremely expensive. Some people consider such rates to be abusive. And given that you can pay only the minimum amount required, you may feel tempted to do so and this leads to debt accumulation which is a widespread problem among American consumers.

Personal Loans on the other hand provide a single amount to purchase whatever you need at a fixed and considerably lower rate (between 8% and 15% usually) with affordable monthly payments that are also fixed. This lets you budget your expenses and have more control over your spending, thus avoiding debt accumulation that can lead to bad credit eventually.