Seventy percent of Americans have at least one credit card. Only half that — 34 percent — have a personal loan. While a credit card can be a useful tool in managing finances, personal loans have many benefits over credit cards. Here are four advantages of utilizing a personal loan over a credit card.
1. Personal Loans Often Have Higher Credit Limits
Credit cards tend to set customer limits based solely on the customer's credit score and company policy. In contrast, a lender who offers personal loans considers things such as the debt to income ratio and income and employment history. When these additional factors are looked at, borrowers may qualify for an increased credit line over a credit card.
2. Personal Loans Often Have Lower Interest Rates
According to Credit Karma, average annual percentage rate on a two-year personal loan from a commercial bank was 10.22%. According to Wallet Hub, the average credit card interest rate is 19.24% for new offers and 14.14% for existing accounts.
While rates can vary widely in comparison to the averages and credit score largely determines the interest rate, taking out a personal loan rather than adding to your credit card debt is likely to be more financially advantageous.
3. Personal Loans Are Easier to Manage
Many people have multiple credit cards. These cards have different credit limits, different interest rates, different repayment terms, different due dates, different rules, and different fees. When all credit cards are in use, it's extremely difficult to keep them all straight. This can result in late payment fees or other charges, which costs you more money. With a personal loan, borrowers only have to worry about one payment.
4. Personal Loans Offer A Repayment Plan
In theory, credit card payments can go on forever. Credit card companies don't care if their customers make the minimum payment month after month. In fact, they want their customers to do just that because they can collect more in interest. It's easier for customers to find reasons to pay only the minimum do, which is how so many people get into trouble with credit cards.
With a personal loan, there is a set repayment plan. The lender expects the borrower to follow it and make their required payment each month. With a personal loan, you know exactly what you are paying and how much you are paying in interest. You also have the benefit of knowing there is an end date in sight when the loan will be satisfied.