The decision for the best method of borrowing money when times are tough depends on a multitude of factors. For some people, getting emergency access to cash may be best done through a credit card, while for others; the best option would be to take out a personal loan. What constitutes the best criteria for this decision-making process?
There are four main factors that you should consider before taking on such a decision: mobility, time, additional benefits, and access.
Mobility
Do you travel around often? People who travel need to worry about security and fraud. Using cash or debit at hotels or restaurants abroad, or even just having it on your person, could expose you to fraud and theft. This is obviously a worst-case scenario, but it is best to be prepared. For this reason, it would be recommended to use credit if you travel frequently. If you get your wallet stolen, canceling your card and getting reimbursed is just a phone call away. Furthermore, credit cards are much more cost when going abroad. You can use them basically anywhere and they will automatically do currency conversions for you. If you are searching for security and traveling cost reduction then a credit card will be the right choice.
If you are not the traveling type, then this factor will have much less of an impact on your decision-making. Given this, credit cards will generally always be safer than having hard cash.
Time
How much time do you need to pay back your loan? Credit cards can be paid back immediately; you just have to balance the account to zero. Credit cards allow you flexibility when it comes to time. However, if you are intending to not be able to pay the debt back soon, then the interest you will accumulate on your credit card debt will not make credit cards a viable option. In situations where you know you will not be able to pay back the debt for a while, you may opt to take out a personal loan.
Bonus Benefits
What are the perks? A distinctive bonus to opting for a credit card over a personal loan is that you will potentially get access to rewards and discounts, in the form of Airmiles, cashback and, promotions at certain stores. So while you are spending money you would need to be spending regardless, you have the opportunity to get some of it back. This point is especially pertinent to travelers, as Airmiles can really add up and save you a ton on airfare. Personal loans will be of no help in the rewards area. Their bonus benefits lie elsewhere.
Personal loans offer you something credit cards cannot: discretion. Once you get the money for your loan. You are free to use it as you please. Whether you want to pay off bills, start a business, or buy expensive jewelry, no one is going to object. Credit cards, however, are monitored by your bank and can therefore have a limited scope of spending diversity.
Access
How easily you can have access to the money? Personal Loans are relatively easy and fast to get. They have very little paperwork, and there is no need for collateral. This is providing that you have a good credit score. Because of how easy it is to get a personal loan, creditors want to be relatively sure you can pay it back. If you have a bad credit score, you can forget about getting a personal loan. The prerequisites for applying are pretty strict and predetermined so there is very little wiggle room when it comes to qualifying. Personal loans will generally offer lower APR rates for the reason that you have to have a good credit standing to even qualify. Credit cards are easier to get if you have bad credit, but you will be restricted financially in the form of a monthly credit limit.
Summary
Credit Card People
- Travelers
- Frequent Flyers
- The small time frame for paying back
- Bad credit rating
Personal Loan People
- Good credit rating
- Need for Discretion
- Freedom to pay back the debt over a longer timeframe
Hugh Tyzack is Managing Director and founder of GBP Loans Limited, which was formed in 2008. GBP Loans specializes in no fee Guarantor Loans. GBP Loans has been a driving force in trying to eradicate bogus fee-charging and is now one of the UK’s biggest providers. You can find more details here. When he is not writing the Blog, Hugh enjoys listening to music and playing the piano. Follow Hugh on Twitter @GBPLoans and also on Google+
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