Posted on: 6 April 2017
If you suddenly encounter an expense that will cost thousands of dollars, you may be struggling to figure out how to pay for it if you do not have enough cash on hand. In this situation, there are two great options you could consider. The first is using your credit card to pay the expense. The second option is taking a personal loan, and here are three reasons why taking a personal loan is usually the better option in this situation.
The interest rate will be lower
Unless you have a credit card with a really low interest rate on it, taking a personal loan will usually offer the lower interest rate of the two options. A personal loan is considered an unsecure loan, which is similar to a credit card. The difference is that a personal loan is issued for the full balance of the loan in one payment. The interest rate will never change, and it is likely to be around 10% if you have good credit.
Your credit card might offer a low rate for a set amount of time, but the rate may go up after this time frame is up.
You will have a date in which it is paid off
The second reason to choose a personal loan is so that you will know exactly when it will be paid off. Many personal loans are like installment loans. This means you must pay a certain amount to the lender each month, and you will have a certain number of payments. When you make the last scheduled payment, the loan will be paid off in full.
Credit cards do not work like this, and you may have no idea when the balance will be paid off. If you only make minimum payments on the credit card, it could take you 30 years to pay off the loan, whereas you may be able to pay off a personal loan in only three to five years.
It can help you build your credit
Finally, taking a personal loan might actually help your credit. This is because it will help you build positive payment history, and this is worth a lot to your credit score. While using a credit card may also help build credit, it may take a while, simply because your credit utilization rate will be high for a while. Your credit score is negatively impacted by high credit utilization rates.
If you need cash for an unexpected expense, you should consider getting a personal loan. This is a great way to pay off a debt you did not expect, and you can get one by contacting a lender that offers personal loans, like Juniata Valley Bank.Share