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When there is a sudden need for money, people often consider either a credit card or a personal loan. Both are easy and quickly available means, but their rules and expenses are different. The real difference is not just in the interest rate, but in how the payments are made and how long the loan will last. The right option depends on your need and ability to repay.
Credit cards: the easy but expensive option
Credit cards are considered better for small and short-term expenses. If you pay the entire bill on time, you do not have to pay interest. But if the outstanding amount is carried forward, the interest rate can reach 30 to 40 percent per annum. Interest gets added and compounded on a daily basis. Making only the minimum payment can stretch out the loan and significantly increase the total payment.
Personal Loan: Fixed time and EMI facility
Personal loan is taken for a fixed amount and fixed tenure. In this, fixed EMI has to be paid every month, due to which the payment plan remains clear. Interest rates are usually lower than credit cards. In every EMI, both principal and interest get reduced. With this, the loan gets terminated at the stipulated time. However, not paying EMI on time may affect your credit score.
Which option is better in which situation?
If the amount is small and you can repay in a month or two, then a credit card may be right. However, if it is going to take you longer to repay the amount, a personal loan is usually a cheaper and less stressful option. Carrying credit card dues for a long time can prove costly. Therefore, it is wise to take a decision only after understanding the need, time and paying capacity.
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