Are Personal Loans with a Fixed Rate Better than Credit Cards?

In the area of personal loans, fixed rate programs are usually going to be your most attractive option. However, some people are swayed into going a different route in using credit cards. Using credit cards to finance certain things can be beneficial under certain circumstances. However, using credit cards for personal needs can also have some disadvantages. If you are trying to decide between personal loans and a credit card, here are a few things that you should consider. 

Personal Loans

Personal loans with fixed rates have several enticing features. For one thing, you are guaranteed to pay a specific amount of interest for the entire life of the loan. You know exactly how much your payment is going to be each month and you can budget accordingly. When you know how much to budget each month, it makes your life much easier to plan. 

The downside with a personal loan is that you have to take all of the money that you need at once. Sometimes you might only want to borrow a certain amount, and then later on you might decide that you need more money. With personal loans, you have to do two different transactions. You have to borrow the money with two different loans. This can be very inconvenient if you need money at different intervals.

Credit Cards

By comparison, credit cards allow you to be more flexible. You can borrow the money when you need it. If you decide that you need to buy something, there are no loan approvals or anything else. This makes credit cards the more convenient option. 

Nonetheless, the convenience of credit cards can also be considered a negative feature. When you are dealing with debt, you don't always want it to be that easy to accumulate. At least with a personal loan, you have to jump through some hoops to get the money. This can prevent you from making a mistake when it comes to borrowing money for frivolous reasons.

Another drawback of using credit cards to finance personal needs is the interest involved. Interest rates on credit cards are usually going to be much higher than anything else. The interest rates are also variable and can change frequently. Having a variable interest rate makes it very difficult to plan your payments. With the way credit cards are set up, you are also only required to make a minimum payment each month. This encourages people to not pay off their balances and stay in debt longer.

The Verdict

In most cases, you will be better off financially to go with fixed rate personal loans. When you have a fixed rate loan, you are actually making progress towards paying off the balance. With a credit card, you could just keep making the payment every month and never make any progress towards getting out of debt. 

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