If you’re wondering how personal loans and credit cards affect your interest rates and monthly payments, we have the information for you.
Read on to learn how personal loans and credit cards differ from each other, and the advantages and disadvantages of each.
Credit cards vs. personal loans
Credit cards can be very useful for paying for everyday expenses such as gasoline and groceries. They give you financial freedom that just cashing your weekly paycheck doesn’t get you. However, credit cards can also be difficult to manage if you have trouble controlling your spending.
According to Rocket Loans, a personal loan is an unsecured installment loan with a fixed interest rate that is repaid in equal monthly installments.
So personal loans are a great option for paying off debts like credit cards while limiting the amount of total interest you pay. You can also use personal loans to help you do home improvement or major purchases.
A Rocket Loans personal loan gives you a simple automated process to transfer your money to your bank account quickly and efficiently.
The biggest advantage of a personal loan over using one Credit card has a lower interest rate.
Credit card rates are usually in the 15 to 20% range, depending on your creditworthiness. A personal loan would offer an interest rate of around 10%. It doesn’t seem like a huge difference, but that 5% can add up quickly.
A $ 15,000 loan amount with minimum payments would take 36 months to be paid off on a personal loan at 12.5% APR (15.742% APR) and would result in a payment of approximately $ 3,064.96. That same $ 15,000 at 17.99% credit card interest would take 253 months to make minimum payments, and Cost over $ 14,000 in interest!
Some credit cards offer an APR of 0% for the first 30 days of a credit transfer. Of course, finding such an offer can save you a lot of money in interest. But like everything else, there are some downsides. In order to benefit from the low-interest credit transfer, credit card companies often charge you 1% – 2% on your transfer. After the initial 30-day period of zero interest rates, interest rates skyrocket, sometimes up to 25%. So make sure you know the terms and conditions before signing up for a credit transfer.
Since a personal loan has a closed term, the monthly minimum payments are usually higher than with a credit card. You pay off the remaining balance faster, which means you pay less unnecessary interest. Having a fixed term on your credit allows you to set your monthly budget and know how much will go towards your loan.
Monthly credit card payments are around 1% – 2% of your total balance. While this results in a lower payment, in the long run you will pay significantly more interest over the life of your credit card. Because your credit balance often fluctuates, so do payments. Your monthly budget can be affected by the changing minimum payments and it is more difficult to keep track of things.
If you’re interested in getting a personal loan, our personal loan experts at Rocket Loans are here to answer any questions you have about the process, your loan, or anything else you can think of! Apply for one of our loans Online today.
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