Instant Loans or Credit Cards; Make Your Choice Carefully
Instant loans (or other fast personal loans) and credit cards have always been in a constant battle as the better choice for debt consolidation. However, what works for one particular borrower might not work as well for another person. This is why individual variables should always be accounted for when making the decision of either using instant loans or credit cards.
Instant Loan in Debt Consolidation
The concept of debt consolidation is simply to place several of your existing debts which may or may not involve high interest rates, into a single loan with a lower interest. This generally allows you to save money over time with a lower accumulated interest. Despite the fact that debt consolidation was originally exclusive to instant loans and personal loans, recently, credit card providers have also started to join this market due to the potential of this market and the fact that most debts would have originated from the use of credit cards.
Scenario of Instant Loan versus Credit Card
Based on an article written by Paul Clitheroe with an example where financial researcher Canstar, as demonstrated in the Daily Mercury, a scenario can be looked at where $10,000 is to be paid off over a period of three years. A fast personal loan would charge interest at 10 per cent, whereas a credit card would charge 0% for the first six months followed by a 12 per cent interest subsequently.
The scenario followed the monthly repayment of $323, where the debt would be repaid in three years using either option of instant loans or credit card. However, in this scenario, the credit card would see an interest charge of $1,353 at the end of the three years, whereas the fast personal loan would see a charge of $1,619. Evidently, the credit card would be the better option in this scenario.
However, most credit cards offer a much lower minimum monthly repayment. Using the above scenario, if the repayment was made at 3 per cent of $10,000, by the end of the three years the cardholder would still owe an outstanding debt of $4,500.
The point of this scenario is to show that which option you choose depends entirely on your personal habits. With personal loans, a fixed repayment schedule and interest allows a clearer boundary to your expenses. Credit cards in most cases can be tempting to make more purchases and increase your debt, and the concept of a low minimum repayment makes people think they only have to pay a small fee, whereas in the long run they’re actually losing more money. In the end however, whether you choose personal loans, payday loans, or credit cards is entirely dependent on how you choose to budget your expenses, and choosing what’s comfortable for you.
