3 Reasons to Choose a Personal Loan Over a Credit Card

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There are several benefits to falling back on a personal loan when a need for money arises.


Key points

  • A personal loan lets you borrow money for any purpose you choose.
  • Choosing a personal loan over running up a credit card tab could mean paying less interest and other benefits.

You may reach a point when you need to borrow money, and fast. At that point, you may be inclined to just swipe your credit cards to cover whatever surprise expense has caught you off guard, and deal with your balances in time.

But before you do that, you may want to consider applying for a personal loan instead. A personal loan lets you borrow money for any reason. Need to fix your car in a pinch? You can do that. Need cash to cover general bills because your job just got pulled? That’s an option, too.

Personal loans tend to close pretty quickly, so once you’re approved for one, you could have your money in days. Here’s why it could pay to opt for a personal loan rather than fall back on your credit cards.

1. You’ll generally pay less interest

Credit cards are notorious for charging large amounts of interest on carried balances. With a personal loan, the interest rate you snag might be significantly lower, thereby making it less expensive for you to borrow. This especially holds true if you’re an applicant with a strong credit score.

One thing to keep in mind about personal loans is that they’re not secured, which means they aren’t tied to a specific asset, like a home or vehicle. The better your credit, the more likely you’ll be to snag a competitive interest rate on the sum you borrow.

2. You won’t have to deal with variable interest

Not only are credit cards known to charge a lot of interest, but the interest rate you pay on your balance can be variable. That means it could rise over time, making your monthly payments more difficult to manage.

Personal loans, on the other hand, come with fixed interest rates. That means you can more easily work your monthly payments into your budget because you shouldn’t have to worry about them rising.

3. You might avoid major credit score damage

Whenever you apply for a loan, it results in a hard inquiry on your credit report, which could cause your credit score to drop by five to 10 points. And that’s a hit you should anticipate if you apply for a personal loan.

On the other hand, if you rack up too high a credit card balance, it could drive your credit utilization ratio into unfavorable territory. The result? A lot more damage than what a single hard inquiry might cause.

That’s just another reason to go with a personal loan rather than load up your credit card with charges. Doing so could minimize damage to your credit score — and help you avoid a scenario where it becomes difficult to borrow money when you need to.

Personal loans aren’t perfect. They can come with expensive closing costs, for example, that you may prefer to avoid. But there are plenty of good reasons to choose a personal loan over a credit card, so it pays to consider them if you’ve landed in a situation where you need to borrow.

The Ascent’s Best Personal Loans for 2022

The Ascent team vetted the market to bring you a shortlist of the best personal loan providers. Whether you’re looking to pay off debt faster by slashing your interest rate or needing some extra money to tackle a big purchase, these best-in-class picks can help you reach your financial goals. Click here to get the full rundown on The Ascent’s top picks.

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