Most of us would want to pay for life’s big expenses with cash, but it is unavoidable that many among us are not really up to it financially. In these tough financial times, we could all need a helping hand. To help us with these expenses, we borrow money. This is the only viable option when faced with a sudden or unforeseen major expense such as a medical emergency, a broken down car or a tax bill that needs settling right away. Consider yourself fortunate if you have relatives or friends who can afford to loan you that kind of money. If you don’t, you still have the option to apply for a personal loan or use a credit card.
So when is it best to apply for a personal loan, and when is the right time to use a credit card?
The best time to apply for a personal loan would be when you need money for a large one-time expense, such as home improvements, major car repairs or hospitalization if you don’t have medical insurance. The great thing about applying for a personal loan is the fact that you will be able to choose up front your monthly payment and loan repayment period. The interest rates for personal loans also tend to be lower than those charged by credit cards. However, while personal loans tend to have lower interest rates than credit cards, most lenders charge application fees for a personal loan. Credit card issuers, on the other hand, seldom charge application fees.
Speaking of credit cards, they can also be used for major expenses, but only when it is small enough for you to be able to pay it off within a year. That would be the right time for you to use a credit card. Many credit cards offer a 0% introductory APR on purchases, which means you will be able to pay the money you borrowed with very little or no interest at all.
There are several things, however, that you need to keep in mind when using a 0 percent APR credit card for a one-time large purchase. As with personal loans, you should keep up with the monthly payments without fail within the agreed payment period. You will also have to steer clear of charging more purchases on the card until that major purchase is fully paid. You see, the 0% introductory APR has an expiration date, and having a balance when that introductory period ends will mean you will be subjected to the high regular APR of your card.
As with all types of borrowing, most personal loans and credit cards charge penalties and fees for failing to make payments on time and in order. This is why you should be perfectly sure of your repayment capabilities before applying for a personal loan or using a credit card for a major expense. Getting a big loan or swiping your card for a major purchase when your financial situation is still unstable can only get you in trouble, and you’ll end up paying more than you should.
This is a guest post written by the staff of the loan comparison site “Billig Forbrukslån“.