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Between Personal Loans with Credit Cards

When purchasing a new car or house, the solution is relatively simple. You would compare the various Home Loans and Vehicle Finance options available at the different financial institutions to find the best deal.

Smaller, once-off purchases, however, can be a little more complicated to manage. Say, for instance, you need to buy a new microwave. While this may not seem very expensive, it’s unlikely that most people would have that extra R1 000 plus on hand. So what are your options?

The two most common options available are Credit Cards and Personal Loans, both of which have their pros and cons when compared to each other. Let’s look at both options in more detail.

Personal Loans

Personal Loans are cash loans deposited into an individual’s account by a financial institution, such as a bank. These loans come with repayment terms and conditions that are determined by the lender. Personal Loans are very easy to apply for provided that the requirements of the financial institution are met and your credit rating is decent.

Personal Loans are finite, meaning that you cannot spend more than the amount loaned to you and once you’ve repaid the loan, the debt is settled.

Credit Cards

Credit Cards allow you to borrow money from financial institutions via the use of a small plastic card. These institutions, and your ability to repay the money used, determine the credit limit of your card. Credit Cards function similarly to an overdraft facility on a current account but you can typically spend more on a Credit Card and at better interest rates.

Unlike a Personal Loan, Credit Cards are a revolving debt i.e. you can continuously use and repay the credit limit amount on your card.

Which one is right for you?

Both Credit Cards and Personal Loans afford you the freedom to choose where to spend the money loaned to you.

If you need to make a purchase of no more than a few thousand Rand, which you are able to pay off quickly, then a Credit Card is the way to go. The quicker you pay off money used on a Credit Card, the less interest you will end up paying. Because Credit Cards are a revolving debt, you can use them whenever necessary.

If however, you need to make a larger, once-off purchase of R15 000 or more for example, then a Personal Loan would be the better option for you. The reason being that Personal Loans mostly have better interest rates than Credit Cards.