Personal Loans vs. Credit Cards for Holidays | Which One is Better?
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Personal Loans vs. Credit Cards for Holidays | Which One is Better?

The holiday season is back, and you would have made a lot of plans. You may have prepared your budget or maybe it is still in progress. Your mind would be fabricating the web of snowfall, cold breeze, the warmth of woolens, hot cappuccino, scrumptious salmon, and much more.

It is hardly a couple of days to the holiday season, and it is difficult to push down the waves of excitement creeping up your spine. Your eyes spark with an intermittent flash of joy as the thought of a holiday trip crosses your mind, but it disappears into thin air as the budget flashes through your mind.

You are lucky if you have prepared your budget, however, there is no guarantee that it will be sufficient – it is apparent to have spent more than the budget while being on a trip, but what if your budget has fallen short of your target?

You can fund your holiday trip. Depending on your financial circumstances and credit rating, you can get a personal loan or a credit card. This raises an intriguing question – which is a better option.

Some say that personal loan is a better option, and some say that credit cards are more beneficial than the former. You do not need to get down to a conclusion because what is good for others cannot work for you. This blog discusses the pros and cons of each.

The Difference between Credit Cards and Personal Loans

Though both are funding sources, they are far different from each other. A credit card is a line of credit that allows you to borrow money at any time up to the limit. Every month a bill generates and you need to pay off the balance within the due date. If you fail to pay off the debt on the due date, you will pay interest.

A personal loan is a fixed amount of debt that you take out with a direct lender on the promise that you pay it back in fixed installments. Personal loans are unsecured. They require neither guarantor nor collateral.

Credit cards allow you to borrow money off and on, but with personal loans, you know that you cannot borrow money without filling out the application form.

When can Credit Cards be a Better Option?

Credit cards are best for making small purchases. Even though you have made a budget for your holiday trip, you will likely need to spend a bit more money because of one reason and the other. This is when credit card plays a better role. Paying a small amount of money within the due date will not be tricky enough.

Here are the pros:

  • You can apply for a credit card anytime. If you have a fair credit rating, you can qualify for a 0% credit card deal.
  • If you know that you will be able to pay off the debt within the due date after bill generation, you should use a credit card.
  • Another reason for carrying credit cards is you do not need to carry cash with you. Credit cards offer better security than cash.
  • Some companies offer travel insurance that provides protection in case of theft.

Here are the cons:

  • If you use your credit card to make purchases, make sure that you pay back your balance within the interest-free period. When you are on a trip, it often seems tough to pay all dues on time.
  • If you withdraw cash using your credit card, you will end up paying high-interest rates. Cash advances do not allow you to avail of an interest-free period. The interest starts adding up as immediately as you withdraw cash.

When can Personal Loans be a Better Choice?

Personal loans are a better option if you have to borrow a large amount of money repaid over a period of at least six months and when you do not want to be tempted to overspend. However, it is not necessary that you cannot take out these loans if you need a small amount of money.

Quick loans are short-term personal loans that you can take out as long as you do not need more than £2,500 (~ INR 232,000). The minimum amount you can borrow with quick loans (opens in a new tab/window) is £1,000 (~INR 93,000) in the UK.

Remember that this approach is beneficial when you are sure that you will need this much money. Otherwise, it will prove an expensive deal. Unlike credit cards, there is no interest-free period. As you borrow money, the interest starts accumulating.

Here are the pros:

  • Personal loans are perfect for planned expenses.
  • Your trip is not very long as short-term personal loans sometimes require a lump sum payment.

Here are the cons:

  • You will end up paying a bit of high-interest rates in case of bad credit.
  • You may have to pay processing and administration fees.
  • If you pay before the scheduled date, you will likely pay a prepayment penalty.

Whether you use a credit card or a personal loan, it totally depends on your choice and circumstances. However, you can leverage the benefits of both if you do not have a complete idea of your expenditure. Both options can work in your favor as long as you do not make a default.

Guest Author – Stacey Walsh

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