Personal Loans vs Credit Cards

It’s always better to pay cash for large purchases, however, there are plenty of occasions when it is just not possible. Life gets in the way, and sometimes ongoing expenses mean it’s difficult to save for time-sensitive purchases. If you are planning to buy a car, take a holiday or undertake studies, borrowing money may be your only option.

In this article, we discuss the differences between personal loans and credit cards and the pros and cons of each. Please note the information in this article is general advice only and should not be considered as a personal recommendation.

What is the difference between a personal loan and a credit card?

A personal loan is a loan that you can use for any personal expenses, including car purchase, travel, education, medical expenses, home improvements or even debt consolidation. It is usually unsecured, however some lenders (like My Cash Online) offer the option to secure against assets such as a car or savings in order to obtain a lower interest rate. Personal loans usually have a fixed rate and set repayment amount over a fixed term. At My Cash Online, we offer personal loans with a term of up to 24 months.

A credit card, on the other hand, is a revolving debt facility. There is a set limit that you can use as often as you like, and if you don’t pay the entire spendings off at the end of the month you will carry a balance against the card. This means that although you are paying interest against a debt, you can continue to make purchases up to the approved limit.

When is a credit card better than a personal loan?

A credit card is very rarely a better option than a personal loan. There is plenty of misinformation that having a credit card helps build your credit rating, however this is applicable in the US only. In Australia, there is no positive impact on your credit rating by holding a credit card in positive standing compared to no credit card at all. However, credit cards may be a good option for those who are able to pay off the balance in full every month and wish to collect rewards points as part of a card partnership program.

The danger with credit cards is that you can always charge more to the card up until you reach the limit, keeping you stuck in a debt cycle. With a personal loan, you know exactly when your balance will be repaid, and as long as your repayment history is good you can often borrow more money from the same lender without completing another application.

When is a personal loan better than a credit card?

If you are looking to make a large purchase that you can repay over time, a personal loan is the way to go. With My Cash Online, your funds will be released quickly and in one lump sum, which you can then pay back in weekly, fortnightly or monthly instalments for a set period. You will be able to budget your set repayments every month and know exactly when the loan will be paid in full.

If you are in need of quick cash for personal expenses, apply for a fast personal loan with My Cash Online today.

*Disclaimer & Example: For our Small Loans of $2,000 or less, an APR (Annual Percentage Rate) doesn't apply. These loans are fee-based only with a term between 62 and 180 days, and so the APR is 0%. The establishment fee is 20% of the amount borrowed and the monthly fee is 4% of the amount borrowed. Representative example: a loan of $1,000 repaid over 3 months equates to a total amount payable of $1,320 comprised of $1,000 principal (amount borrowed), $200 establishment fee and $120 in monthly fees. The maximum comparison rate on loans between $300 and $2000 is 199.43%.
For our Medium Loans between $2,100 and $5,000, with a term between 2 months and 12 months, the maximum Annual Percentage Rate (APR) is 48% (Comparison rate 65.6597% p.a.) and there is a $400 Establishment Fee. A Medium Loan of $3,000 borrowed over 1 year would equate to a total amount payable of $4,289 (including a $400 establishment fee).

Under the current legislation, most small personal loan providers don’t charge an annual interest rate (you’ll know this as an APR %). The maximum you will be charged is a flat 20% Establishment Fee and a flat 4% Monthly Fee. The maximum comparison rate on loans between $300 and $2000 is 199.43%. This comparison rate is true only for the examples given and may not include all fees and charges. Different terms, fees or other loan amounts might result in a different comparison rate.

© 2023 Owned by Australian Synergy Finance Pty Ltd, ABN 54 613 655 646. Australian Credit Licence 490422. The information on this webpage is general information only and does not take into account your objectives, financial situation or needs.