Personal loans vs credit cards. What you need to know.
A personal loan is about as straightforward as it gets when it comes to borrowing money. It can help you pay for something special like a car, holiday or home renovations, or to consolidate debt. With a personal loan, you borrow a specific amount and you make regular payments until it’s paid (along with the interest), usually one to five years.
And for a long time personal loans have been in the shadow of credit cards. That’s because credit cards are very good business for banks, and better business than on an old-fashioned personal loan.
If you turned up at the bank to borrow money to renovate your kitchen and took out a personal loan, the deal would usually come to an end when you’d paid back the money. But if the bank gave you a credit card with a permanent line of credit, you might just keep using that credit – renovating the bathroom, taking a holiday – and the bank can charge very high interest rates for that.
So the poor old personal loan sat alone and neglected on the bench.
But things have been changing, and person loans are suddenly in fashion again.
Why? Competition. The internet and automation has made it possible for new personal loan companies to come into the market offering a better deal. They’re online and automated and they don’t cost very much to run.
They don’t need any expensive buildings, they don’t need tellers, they don’t need many staff, they don’t need to hold billions of dollars in capital. That means there’s more competition in the market, with more lenders offering lower interest rates and small business loans and that all adds up to a more competitive deal for borrowers.
It’s not a great time to be a bank right now, with all the competition from peer-to-peer lenders and no-frills online lenders, but as a customer, your options have probably never been so wide and varied.
So if you’re looking to borrow money – whatever the reason – weigh up the pros and cons of each, and don’t forget to check your offers here on Credit Simple to see what you’re eligible for.
Lauren is Credit Simple's resident content guru, bringing you tips and tricks to help you take control of your money and find financial freedom.All stories by: Lauren Quinn