Are you faced with the need to make a big purchase for a much needed item? Do you have the readily available funds to make the purchase? If it is an unexpected expense, then few of us have the cash and so need to look at another payment method.
Perhaps you have to pay for car repairs, a new washing machine, fridge repairs or another unexpected bill and you are wondering whether to use a credit card or take out a loan.
Which is the better option and which is the most cost effective? There are numerous credit cards that offer 0% interest for an amount of time and for some purchases, this will give you a good option.
You will be able to make a purchase on the credit card and pay off the balance in regular monthly payments and all within the 0% interest offer timescale.
This may sound like the ideal option but in some cases it may be a better option to take out a loan to save on charges.
If your credit card has a limited time 0% deal, then you need to consider whether you will be able to pay off the full amount before the short term interest rate ends and a high interest rate is added.
If you will have a balance on your credit card that will start to incur interest charges, what is the interest rate? Typically, interest rates on credit card is quite high.
A good alternative may be to investigate the interest rates on loan agreements. If this is lower than the credit card rate, then this could be more cost effective.
You will, of course, need to look at the other terms and conditions of the loan, such as the length of time to pay off the amount and the monthly payments need to be affordable within your budget.
It is also worth while checking if there are any penalties for paying the loan off early or making additional payments.
This would be particularly wise if you think in the future you may be able to pay higher monthly payments and ultimately save money on interest charges.
Deciding whether to pay on credit card or use a loan may depend on the amount of money you require.
Smaller purchases such as household items or electrical goods would usually have shoppers reaching for the plastic, while larger purchases, such as a new car or home improvements, are the more common reasons for a loan.
However these are not set rules and by looking into the interest rates and terms of all of the options available to you, it allows you to make an informed and practical decision for your circumstances.
What suits you does not suit everyone, do not be persuaded to take out loans or credit cards on the recommendation of friends or use finance from a pushy sales person, as it may not be right for you.
There is a growing trend for payday loans which lend smaller amounts of money for a short period of time and this may be an option for unexpected expenses. However, as with any finance agreement, investigate the interest rates and terms before signing up.
Guest post by MSM
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