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

A common question is whether a personal loan, with a fixed rate, is better than a credit card, with a variable rate. While in many cases a personal loan with a fixed rate would be the better choice, it is not always the case. Both personal loans and credit cards, if utilized properly, can benefit a borrower. 

Defining a Personal Loan

A personal loan, with a fixed rate, can be an auto loan, a loan for a vacation, a loan to consolidate debt, or for any other personal expenditure. The personal loan has a fixed rate, a fixed term, and a predetermined monthly payment. This differs from a credit card because the card has a limit and a flexible repayment plan. You only need to pay the minimum payment.

Both personal loans and credit cards are unsecured. If you do not make your payments, the lender does not have collateral to collect. That's why your credit score is a significant factor for your lender. 

When is a Personal Loan with a Fixed Rate a Better Choice?

When you are making a large purchase and will require a sufficient amount of time to pay off the debt, a personal loan is a better option. You can shop around for the lowest interest rate and the terms. You do not have to be worry about increasing rates.

When is a Credit Card a Better Choice?

If the expense is small, and are able to pay it off quickly, then a credit card can be a better choice. You already have the credit card and you don't have to wait for any approval. If you can find a credit card with an introductory offer of 0% and you know that you can pay off the purchase before that offer expires then using a credit card is a choice that works. 

A credit card is also a better choice if you plan to pay off the purchase at the end of the month. In this case a credit card is far more convenient and you won't pay any interest because you pay it off before interest is incurred.


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