Personal Loan or Credit Card: Which is the Best Option for Short-Term Financing?

Monday, October 3, 2011, 3:00 AM | 2 Comments

Everyone inevitably runs into financial trouble once in a while. If you are currently experiencing one, you could take several options to resolve your problem. You may need money to fix a broken car, to cover an unforeseen medical cost, or to avoid defaulting in a significant loan.

Consumers now have two primary options. Short-term loans could be in the form of personal loans or credit card cash advances. Both have their own sets of pros and cons. Which is the better option for you? It would be ideal to weigh the advantages and disadvantages before deciding on which one to take.

Personal loans

Personal loans for short-term financing could be in two types: personal unsecured loans and payday loans. Personal unsecured loans are like other loans only that you need not use a collateral or security just to obtain the amount. However, a good credit standing is required to get an approval for the loan. The amount could be repaid in monthly installments. Annual percentage rate (APR) is higher compared to mortgages or other types of secured loans, though.

Payday loans, on the other hand, are specifically for short-term personal financing. The repayment window is logically shorter than normal. It may take about 14 days to 31 days. As a borrower, you must repay the payday loan by your next payday. At the maturity date of the loan, you must repay the amount borrowed plus all the finance charges in just one lump sum. You could opt to pay directly to the loan provider or issue a check. APR could also be high so that it is more advisable if you would repay the loan immediately instead of roll it over to the next payday.

Credit card cash advance

You could actually use your credit cards to obtain short-term financing. That is possible through the credit card cash advance feature, which usually comes with regular cards. You may have to use prescribed ATMs to withdraw any amount. It could be just like withdrawing from your regular ATM card. After the cash is obtained, you must repay the loan amount in the same way you repay your standard credit card transactions or purchases.

Needless to say, cash advance transactions using credit cards are quite costly. APRs are often higher than 20%, which makes credit card cash advances take higher interest rates than your regular credit card purchases. Finance charges are also applied including a cash advance fee, which usually falls within 3% of amount obtained.

You may use any of the credit cards you presently own for this feature. If you do not own a card or if you do not like to use the ones you currently own, you may apply for a new card. Doing so may be advantageous because you could choose a new credit card that offers a special introductory deal (lower interest rate or 0% transfer rate). Once you use this option, be sure to repay the amount as soon as you could so you would not incur much on credit card fees and interest payments.

This is a guest post. Andrew B. has been working in the finance industry for the last 3 years as a low doc loan specialist at Australian Lending Centre.

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  1. 2 Responses to “Personal Loan or Credit Card: Which is the Best Option for Short-Term Financing?”

  2. By rostumetru on Oct 16, 2011, 4:38 am | Reply

    Very wisely good luck

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