The first question you are likely to ask when you need to extra cash is: What are my short term credit options? Personal Loans Now compares the three main types so you can figure out the right option for you.

credit options - personal loans now

Learning Highlights
  • When a credit line loan is agreed, you only pay interest if you use the money available.
  • Credit Cards offer all kinds of perks, including air miles and discounts to shops

Credit Options: Personal loan, Credit Card or Credit Line?

Financial problems can strike people at any time. Unless people have an emergency fund to use in times like these, they will need to find some funds. Instead of dipping into investments, many choose to take out some kind of short term credit to tide them over. Here Personal Loans Now, offering guarantor loans UK shall compare loans. We take a look at three popular lines of credit and discuss the pros and cons of each one.

In this article about choosing between credit cards, a credit line or a personal loan we shall examine:
  • Needing a loan
  • Compare personal loans
  • What a credit line loan is
  • What a credit card is
  • Good credit card deals
  • Compare these three credit options

Falling Short of Funds? Compare Credit Options

Most people, through life’s uncertainties, or in order to fund a purchase or a holiday need to use some credit. There are hundreds of financial products on the market to choose from. It can sometimes seem a little confusing as to which one would best suit your individual needs. Before applying for any of the credit options, consider contacting a finance charity such as Citizen’s Advice Bureau. However, you might decide that using a credit option is the right thing for you. Here are three of the most popular credit options that we shall take a look at in a little more detail: Personal loans, credit lines and credit cards.

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Personal Loans are a Popular Choice of Credit

A personal loan is a sum of money to finance a purchase, or for house repairs that are usually up to £50,000. Most people use personal loans for smaller amounts of credit and try and take them out for the shortest amount of time to avoid paying more interest. A personal loan is a fixed sum of money with a fixed interest rate for an agreed period with established monthly repayments.

In exchange for lending the money, the lender charges interest for his fee. Then money to be repaid is the amount of the loan plus the fee, which is in the form of interest. This enables people to make expensive purchases for things that they couldn’t otherwise afford. They receive this lump sum and spread the repayments out into small amounts over time.

Personal Loans as a Credit Option:

You can obtain a personal loan by putting up an asset such as your home as security. These kind of loans are usually for larger amounts of money. These types of secured loans usually offer low rates of interest as they are less risky for lenders who can take a person’s home if they don’t repay the loan.

credit options - personal loans now

An unsecured loan is usually for a smaller amount of money, but they can go up to £25,000. Because this kind of loan involves more risk for the lender, people need to have a better credit score than you require for a secured loan. Also, the interest payments will be higher.

What is a Credit Line Loan?

Many banks offer a credit line to their customers. This kind of loan is available to the borrower whether they chose to use it or not. The loan resembles a credit card in the way that you only pay interest on the amount you actually use and not the whole value of the money available. The interest on the amount borrowed is calculated and paid every month on or by the due date. You have to repay the loan by the end of the tenure.

This kind of loan will have more interest than an unsecured personal loan but less interest than a credit card. You only pay interest when the loan is touched. There can be high fees for setting up this kind of loan. The loan will be based on the loan limit as opposed to what you may or not use.

credit options - personal loans now

Read through the contracts carefully for clauses that allow the lender to demand the repayment of the loan at any time.

So what have we learned so far?
  • Short term credit options can save people from dipping into savings
  • A personal loan is a fixed amount, with a fixed interest rate, with fixed payments
  • Secured loans can have lower interest rates
  • When a credit line loan is agreed, you only pay interest if you use the money available.
  • The setup fees are high, and the interest rates are higher than personal loans
  • Care must be taken to make sure there are no instant payback clauses for the lender

What is a Credit Card?

A credit card allows a user to use the bank’s money to make any purchase. There is a grace period on the amount of money that is usually around 25 to 30 days. As long as you repay the money by the due date, you incur no interest on the card. If the user misses the payment time, then they will have to pay the agreed amount of interest, calculated on the outstanding balance, plus the money owed.

The good thing about credit cards is that you can make large purchases and you can pay off the bill paid in instalments. The danger of this is that people can sometimes overspend and the interest rates are typically high, so a small debt can soon become a larger one. Credit cards are useful for building a credit score and are safer than carrying around large amounts of cash. A credit card statement can make budgeting easy, but when people are not budgeting properly, it is very easy to overspend and get into debt.

credit options - personal loans now

Credit Cards and Good Credit Scores

There are plenty of good deals to be had on a credit card when a person has a good credit score. People can enjoy air miles and discounts and lower interest rates. When a user pays off their balance every month, then it is a good idea to get a card which offers rewards, but these can come with higher interest rates.

How Do these 3 Forms of Credit Options Compare?

Credit cards can be cheaper than personal loans if the amount needed is small. Some credit cards can offer 0% interest for 36 months and have limits of £5,000. If you require the money for a longer period, then the choice would be between a low rate personal loan and a credit line. Both of these loans will depend on the needs of the borrower. For a one-time large purchase a personal loan is better, but if a person wants to make ongoing purchases, then a credit line may fit their needs.

A personal loan comes in a lump sum, whereas a line of credit is reusable. With a line of credit, you only pay interest on what you used. Compare this to a personal loan where you pay a fixed or variable rate on the whole amount borrowed.

credit options - personal loans now

The interest rates on a credit line do tend to be a little higher than a personal loan. The setup fees can be more costly. Some lines of credit may be demanded to be repaid by a lender, whereas a personal loan will run its course to term.

Conclusion: Credit Cards, Lines of Credit or Personal Loans?

Taking out any kind of credit will be more expensive the longer it is taken out for. Credit cards are an excellent source of credit when a person has a good credit score and can get a low-interest reward card. Lines of credit are useful for individuals who make irregular purchases as opposed to making a one-off purchase where a personal loan with a fixed repayment rate would be better. Credit lines can charge slightly higher interest rates than personal loans, but the lender only charges you on the amount of the credit you used. Remember that for all the credit options mentioned, your credit rating will be affected if you are refused the after applying.

credit options - personal loans now