If you are considering credit, then getting the best deal for your money is important but do you choose a loan or apply for a credit card? There are different benefits for either form of credit and working out what is best for you is not always as straight forward.
A credit card is a great way to have access to a set limit of money, paying off the minimum each month can make the debt on the card an expensive option, but there are ways in which you can use a card and save money compared to a loan.
0% deals are great on new purchases if you are able to pay off the debt before the deal ends. It can allow you to spread the cost of the item over a set amount of months, normally around 6.
However, there is no guarantee when you apply for the credit card you will be given enough credit required for the intended purchase. If this is the case and you then opt for a loan, this could affect your current credit score and result in a loan application refusal or a higher rate of interest charged for the loan.
The added protection that you get from a credit card is beneficial though, it protects the purchaser from a number of instances which can cause you to lose money, including goods not delivered.
Getting a loan for an item can give you peace of mind over a credit card. You apply for the amount required and if accepted, you know the amount of interest that you will be paying each month and the total cost of the loan.
The disadvantages of choosing a loan is the restrictions in place on the loan. Sometimes part payments are not permitted or you can’t pay off more than a percentage. This reduces the control you have on the money and the interest you are paying.
However, you have a monthly term and the end date. Often the interest rate is lower than a credit card, which means you can pay less in interest unless you get a 0% deal.
Knowing the amount you wish to borrow, before signing up you’re shown an estimation as to the amount of the monthly payment allowing you to ensure you can afford the amount in question.
With a credit card, the amount you owe in the monthly minimum payment can seem low, and putting more on to this form of credit is very easy, without a plan in place in which you aim to clear the debt.
Therefore, there are pros and cons with both forms of credit, working out the best one for you is going to take time. However, it is important that you realise that every time an application goes in it affects your credit rating, this reduces your score and can increase your chances of rejection or higher interest rates offered.