Using loans and credit cards for big purchases

[Aug 19, 2011.]

 

Should you use a personal loan or credit card when making major purchases? Assuming that you have good credit and can qualify to borrow money, here are some things to consider when choosing between the two financial products.

Your best interest

The first thing most people look at when borrowing money is the amount of interest being charged. It usually isn't a problem to find personal loans with fixed rates. Having a fixed interest rate means there won't be any surprises when you receive your loan statement. You'll always know exactly how much to set aside each month for your loan payments.

Credit card interest rates fluctuate. While you may initially be offered a low introductory rate when you sign up for a card, ultimately that interest rate will rise. So you'll have to be ready to make higher payments when the rate changes. Another thing to consider is that being late with a credit card payment is likely to result in the interest rate being raised significantly.

Personal rates on loans do tend to be lower than what is offered for credit cards. But if you don't have the best credit you won't qualify for the lowest rates for a loan.

Where to get a loan

There are several places you can go for a loan. Banks and credit unions are popular with many consumers. However, you may actually get more personalized attention when applying for a personal loan from a credit union. A credit union also may be more likely to reconsider a loan request that has been turned down for some reason. Borrowing from a credit union is limited to members only so you would have to meet the requirements for opening an account.

Depending upon the type of purchase you are making, you may be offered a loan from a retailer. Stores that sell furniture, appliances and electronics frequently offer loans to customers. Other types of retailers offer financing too, but keep in mind that the interest rate you'll pay on a store line of credit is usually higher than if you borrow a loan from a bank or credit union. Interest rates on store credit cards also are higher than what is offered by other credit card issuers.

 

About Author:

Francine L. Huff is a freelance journalist and the author of The 25-Day Money Makeover for Women. She has appeared on a variety of TV and radio shows.