Credit cards or personal loans – the debate over the pros and cons of these two financing options still rages on. On the one hand, credit cards offer an easier and much more convenient means of borrowing. However, they tend to be more expensive and, therefore, their popularity is waning. On the other hand, personal loans are much cheaper, albeit they are a tad less flexible than credit cards. Nonetheless, generally, the best financing option depends on what you plan to spend the money on as well as the personal discipline you have when it comes to repaying.
On the whole, Australians like to spend. As a country, we have stacked up about $100 billion in debts emanating from personal loans and credit cards. Credit cards and personal loans make it easy to access cash when you don’t have any savings and they both offer different features that make them suitable for different circumstances. A good example is the structure of each product. Credit cards are structured in as a line of credit-style account which offers users regular access to smaller amounts of money as they need it. On the other hand, personal loans offer lump-sum access to money, usually meant for a particular reason.
Either way, one thing that can’t be avoided is the fees and penalties. As such, each of these loan options needs to be handled with caution.
According to the figures given by the Australian Prudential and Regulation Authority, in December 2012, personal loans had totalled about $58.6 billion while outstanding credit card bills totalled $40.8 billion. Furthermore, it has been openly published that financial services providers charged an average interest rate of 13% for personal loans and 17% for credit cards.
Counting The Cost
One of the reasons that personal loans are more attractive is that they have lower interest rates when compared to credit cards. Their repayment schedule also makes it easier for debtors to fully repay their loans, eventually. This means that in the long run, personal loans are cheaper. They also come with greater strictness in terms of repayment terms, which sees the loans cleared within the agreed time frame. Furthermore, with personal loans, the temptation to keep spending is lower due to the fact that very few loans offer to redraw options. With this in mind, personal loans are far better when making a one-off purchase such as furnishing a new house, financing home improvements projects or taking an overseas holiday.
On the other hand, the convenience that credit cards offer allow their users to spend immediately as needed. This is great when it comes to emergencies. Credit card users really need to consider whether they have the cash flow to make the repayments as soon as possible or whether you will likely keep spending, going further into debt.
When it comes to personal loans, LoanOne is there to help you. LoanOne is one of the fastest growing financial companies in Australia. We offer both personal and business loans with competitive rates across a broad array of industries. Our loans are fast, flexible and can be tailored to both your personal or business needs. For fast approval please click here and apply now!