You may reach a point where you need to borrow money, and quickly. At this point, you might be inclined to just swipe your credit card to cover any surprise expenses that caught you off guard and settle your balances on time.
But before you do that, you might want to consider applying for a Personal loan in place. A personal loan allows you to borrow money for any reason. Need to repair your car in the blink of an eye? You can do it. Do you need money to cover your general bills because your job has just been retired? This is also an option.
Personal loans tend to close pretty quickly, so once you’re approved, you could have your money in days. Here is why it could be advantageous to opt for a personal loan rather than falling back on your credit cards.
1. You’ll generally pay less interest
Credit cards are notorious for charging high interest on carried forward balances. With a personal loan, the interest rate you get can be significantly lower, allowing you to borrow for less. This is especially true if you are an applicant with a good credit score.
One thing to keep in mind about personal loans is that they are unsecured, which means they are not tied to a specific asset, such as a home or a vehicle. The better your credit, the more likely you are to earn a competitive interest rate on the amount you borrow.
2. You won’t have to worry about floating interest
Not only are credit cards known to charge a lot of interest, but the interest rate you pay on your balance can vary. This means it could increase over time, making your monthly payments more difficult to manage.
Personal loans, on the other hand, come with fixed interest rates. This means you can more easily fit your monthly payments into your budget because you shouldn’t have to worry about them increasing.
3. You could avoid major damage to your credit score
Every time you apply for a loan, it results in a difficult investigation on your credit report, which could drop your credit score by five to ten points. And it is a success that you must anticipate if you apply for a personal loan.
On the other hand, if you accumulate too high a balance on your credit card, it could lead to your credit utilization rate in unfavorable territory. The result? Much more damage than a single serious investigation could cause.
It’s just another reason to opt for a personal loan rather than charging your credit card with fees. This could minimize the damage to your credit score and help you avoid a scenario where it becomes difficult to borrow money when you need it.
Personal loans are not perfect. They can lead to expensive closing costs, for example, which you may prefer to avoid. But there are plenty of good reasons to choose a personal loan over a credit card, so it pays to consider them if you find yourself in a situation where you need to borrow.
The best credit card cancels interest
If you have credit card debt, transfer it to this top balance transfer card can let you pay 0% interest for 18 months! It’s one of the reasons why our experts rate this card as a top choice to help you control your debt. This will allow you to pay 0% interest on balance transfers and new purchases during the promotional period, and you will not pay any annual fee.
Read our full review for free and apply in just two minutes.
We are firm believers in the Golden Rule, which is why editorial opinions are our own and have not been previously reviewed, approved or endorsed by the advertisers included. The Ascent does not cover all offers on the market. The editorial content of The Ascent is separate from the editorial content of The Motley Fool and is created by a different team of analysts. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.