Borrowing money is a big choice, for some it can be a terrible idea, but for others it can be just the saving grace they need to change your credit score. Going from the speed at which you get money to how much interest you pay. Borrowing money can totally change your financial habits too!
One method may have been ideal in the past, perhaps an online loan CreditNinja, or maybe you went with a credit card with a bank. However, just because something worked before does not mean it is ideal now, and you should choose depending on what is best now.
Personal short term loans and credit cards are the most common borrowing forms, and both can be ideal in different circumstances. However, when you want to borrow in the short term only, you really need to think about what is best for you.
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Choosing A Loan
Loans are one of the options, and personal loans are one of the most popular. Personal loans can be long term or short term. You will be borrowing a fixed amount of money over a fixed time period. With this you will also be offered a very specific interest rate as well.
Upon agreeing to this you will then receive a contract in which you will pay a specific amount back on a regular basis.
Personal loans are the quickest way to borrow money, as once a lender has agreed to lend to you, and you have agreed, the sum is usually transferred almost instantly. Therefore, funds will be in your account on the very same day, it can even be as fast as an hour!
This can vary depending on if the bank you are with will accept payments faster than this, however.
Pros of Loans
- Interest rates offered can be lower than credit card interest rates, but this also depends on your credit score.
- Since you pay a fixed amount, you do not build up what you borrow. So you are far less likely to end up in debt.
- You can often pay back extra, like on a credit card. However, some lenders may have rules around this, always check the fine print for information on this!
- The amount borrowed is free for you to use as you wish. And you will be charged the same rate no matter what you use it for. However, you usually need to state the reason for borrowing on your application.
Cons of Loans
- You pay a set amount each month, unlike with credit cards where it can get less the less debt you have.
- There is 0 flexibility around what you borrow, so you cannot get more when you have paid off some. You would need to apply for a whole new loan to do this.
- You can pay over the set amount per month, but it has to be additional to the payments you pay by contract.
Choosing A Credit Card
Credit cards are revolving credit, which means you can control just how much debt you pay back, you could pay back the bare minimum, or the whole full amount upfront.
Due to this, credit cards are probably even more popular than loans, and are considered to be one of the most flexible borrowing types. As you can borrow however much you want to within the limit you agree upon with the lender. You can also pay as much or little back as you want as long as you meet the minimum.
Pros
- You do not get charge interest straight away, there is usually a grace period (not all credit cards will have this though).
- With a good credit rating you could get an introductory offer for a set period of time. This could even be no interest on all purchases, balance transfers or cash transfers. However, there may still be associated fees!
- You can borrow money on a credit card and not pay interest. In order to do this you would need to clear your balance totally each month, or pay off transactions not covered by introductory offers.
- You will need to meet minimum payments, however, you can pay back anything between minimal and full balance, and you will not be charged penalties for doing so, like you can be with some loans.
Cons
- It can take some time for you to get your credit card after applying for one which does slow down the access you have to the money.
- Credit cards are only ideal for purchasing, withdrawals will come with extra charges and this will not be covered by the grace period.
- Credit cards will also usually have a higher interest rate than loans do. This can be dependent on the lender and your credit score, however.
- If you were to miss a payment, you can lose introductory offer rates.
- Flexibility on this can be a bit too tempting, and you can end up borrowing more and repaying less which can make it more likely for you to end up in revolving debt.
Considering Your Credit Score
When you borrow using a loan or a credit card, you are borrowing money and paying it back per contract. No matter which you choose, how you manage this will impact your credit score.
If you pay it back on time and consistently, you will increase your credit score. However, if you default on payments, miss one, or end up in more debt as a result, you can damage your credit score.
Which Option Is Best?
Which is best will be totally dependent on how much money you need to borrow, how fast you need it and how soon you are able to repay it.
If you only want a small amount to pay back within a 6-month period, then a credit card is the best choice. However, if you need to get money more immediately, loans might be more ideal, they are more ideal for long term borrowers, but they can be even cheaper if used over the short term.
Whatever you pick, just make sure you use it right!