Personal Loans vs Credit Cards: Things You Should Know
AH
Last updated 04/16/2024 by
Audrey Henderson![cc-vs-loans](/_next/image?url=https%3A%2F%2Fcdn-blog.supermoney.com%2Fwp-content%2Fuploads%2F2015%2F09%2Fcc-vs-loans.jpg&w=3840&q=75)
Compare Credit Cards
Compare the rates, fees, and rewards of leading credit cards.
Advantages of Credit Cards
![credit-card-debt-elimination-e-book](/_next/image?url=https%3A%2F%2Fcdn-blog.supermoney.com%2Fwp-content%2Fuploads%2F2015%2F09%2Fcredit-card-debt-elimination-e-book.png&w=3840&q=75)
Disadvantages of Credit Cards
![Understanding-Credit-Card-Interest-950](/_next/image?url=https%3A%2F%2Fcdn-blog.supermoney.com%2Fwp-content%2Fuploads%2F2015%2F09%2FUnderstanding-Credit-Card-Interest-950.png&w=3840&q=75)
Many credit cards charge high fees for late payments or for going over the credit limit. Others impose stiff penalty APRs for missed payments that may be permanent. Besides lowering your FICO score, fees and penalty APRs can dramatically increase your debt, which in turn could have a detrimental effect on your credit report and FICO score. And unlike mortgage or student loan interest, credit card payments are not tax deductible.
Advantages of Personal Loans
![secured-vs-unsecured-debt](/_next/image?url=https%3A%2F%2Fcdn-blog.supermoney.com%2Fwp-content%2Fuploads%2F2015%2F09%2Fsecured-vs-unsecured-debt.png&w=3840&q=75)
Your credit utilization ratio, that is, the percentage of your available credit that you’re actually using, counts for 30 percent of your FICO score. Using too much of your available credit can really give your FICO score a hit. Personal loans don’t have an adverse affect on your credit utilization ratio because they are considered to be installment loans rather than revolving credit. Handling a personal loan responsibly can also improve your credit profile and your FICO score.
Disadvantages of Personal Loans
![what-is-the-difference-unsecured-loan-vs-credit-card_554317c26ecf5_w1500.png](/_next/image?url=https%3A%2F%2Fcdn-blog.supermoney.com%2Fwp-content%2Fuploads%2F2015%2F09%2Fwhat-is-the-difference-unsecured-loan-vs-credit-card_554317c26ecf5_w1500.png.jpg&w=3840&q=75)
Personal loans also don’t provide perks such as zero percent APR or rewards programs. Making a purchase with a personal loan won’t provide you with an extended warranty or insurance unless you purchase them separately. Personal loans also don’t provide a refund option if you’re not satisfied with your purchase. If the merchant doesn’t allow refunds, you’re generally out of luck.
Many payday lenders extend credit to nearly anyone who has an income. Payday loans are also processed within hours or one or two business days. But in exchange for speed and convenience, payday lenders impose triple-digit interest rates and unrealistically short repayment periods that result in an endless cycle where the amounts owed get bigger, not smaller. Payday loans also usually don’t report payments to the three major credit reporting bureaus: TransUnion, Equifax or Experian, so maintaining on-time payments does nothing to improve your credit profile or your FICO score.
When to Use Credit Cards
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When to Use Personal Loans
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The Final Verdict
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AH
Audrey Henderson is a Chicagoland-based writer and researcher. She holds advanced degrees in sociology and law from Northwestern University. Her writing specialties are sustainable development in the built environment, policy related to arts and popular culture, socially and ecologically responsible travel, civic tech and personal finance.
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