You may be engaged in planning the best arrangements for Christmas. Be it ensuring decent lighting or updating seating space, it is all about making the place look stunning and comfortable. For this, individuals resort to the easiest mode—credit cards.
One can choose the cheapest credit card and buy big-ticket items. You receive a bill after a month of using one. What if the bill surpasses the expectations? It could affect your existing and medium-term Christmas goals. It could be meeting utility bills or planning Christmas groceries.
What could be the best response towards credit cards? It is none other than personal loans. It sets clear expectations without landing one in doubt. Moreover, it costs less than using a credit card for the same purpose. The blog discusses why using personal loans during Christmas purchases is better than credit cards. It is a great read for an individual who uses credit cards for 70% of their purchases.
Each of the financial equipment is ideal for a particular purpose. Knowing the basics will help you understand the usage and liabilities better. Let’s understand the basic difference:
Parameters |
Personal loans |
Credit cards |
Definition |
It is an unsecured financial facility ideal for any purpose. It holds a fixed interest rate and payment terms.
|
It is a revolving credit that does not disclose the amount you owe until the month’s end. |
Repayment type
|
Installment payments |
Monthly Payment- one-off |
Interest liabilities |
The interest rates on personal loans are less than on credit cards. It could be up to 20%
|
The average interest rate on credit cards is 24% (according to the latest stats. |
Ideal usage |
Using a personal loan is ideal when you need to buy big-ticket items comfortably. Moreover, you can check for loans to finance emergencies cheaply.
|
You can use credit cards to benefit from the introductory period or use credit points. |
One of the most amazing reasons to use a personal loan is that it prevents overspending. According to a UK therapy guide, individuals overspend on presents. Using credit cards in such cases may exceed spending. Alternatively, personal loans prevent you from that. It provides only the amount that you can afford without worries. Thus, it takes away the worries of spending unnecessarily. Eventually, it helps you with savings. Here are other reasons to use personal loans over credit cards:
Individuals engaged in multiple aspects like- renovation, painting, gifts, decoration, etc. It involves multiple transactions and financial equipment, leaving one with limited cash flexibility. It means you spend just near equal to your income. It affects your financial management and credit score. Generally, you must ensure a 30% credit utilisation rate.
Not having that leads to bad credit scores. Here, using unsecured loans for bad credit is a wise decision. Tap it instead of using basic savings. It helps meet your needs by taking up a long repayment term. Make regular instalments until the loan repayment deadline. This consistent payment pattern improves your credit history and score.
Personal loans are affordable solutions to your cash needs. The loan provider analyses the person’s affordability before approval. It thus limits the chances of seeking expensive finance. Moreover, the fixed repayable amount limits the risk associated with defaulting. Credit cards might be easier to get. However, an individual spends more than his finances allow. It affects his liabilities later.
Personal loans have an interest cap. No loan provider can charge you beyond that. This cap also applies if you miss a payment or default. This security parameter is missing in credit cards.
For example- You need £5000 for critical requirements like- purchasing upholstery for Christmas. You may be eager to take out your credit card. Wait! Check this:
Here is what your payments may look like:
Parameters |
Personal loans (amount in pounds) |
Credit cards (amount in pounds) |
The amount borrowed/taken on credit
|
5000 |
5000 |
Interest rates
|
20% |
24% |
Repayment time
|
1 month |
1 month |
Total amount repayable
|
5083 |
5099 |
Note: This is an example if you borrow an amount as a personal or credit card. You can repay the unsecured personal loan with monthly instalments. For example, if you want to pay £5000 in 12 months, your monthly payment will be 463. It may be more affordable than paying one-off payments like credit cards. You can use the MoneySavingExpert calculator to determine your choice better.
Every individual likes little financial flexibility during the November-January phase. It is the holiday season, and expenses are common. It is usual to exceed the budget line. Personal loan providers understand that. That is why legally operating firms provide the flexibility to reschedule the payments. It eliminates the worries of attracting penalties.
Thus, you never skip the payment. Instead, you just re-align it with a comfortable repayment date. However, extending the repayment date implies paying more interest charges. Understand your costs before rescheduling the payments.
Alternatively, credit card rescheduling is not available. Instead, the provider starts charging interest from the day you miss the payment deadline. Popular credit providers like NatWest and Barclays charge £12 extra for missing the payment on the due date. This could significantly impact your credit score.
Moreover, according to Money.co.uk , “your credit score may fall by 100 points on missing a payment.”
For example, your current credit score of 668 may fall to 568. You generally fell to bad credit from a fair credit history. That’s a huge loss! It may affect your approvals for credit cards, mortgages, and car loans.
One may encounter urgent cash needs during Christmas. It could be a slight accident while cleaning the roof or plumbing issues. One generally lacks cash flexibility during Christmas moments. It is due to the engagements. Thus, resorting to credit cards for instant cash is a bad option. It implies paying more interest later. It requires withdrawing some amount. It is the costliest way to counter any emergency. Instead, personal loans offer better flexibility during emergencies.
You may get instant cash loans with no credit check online. It does not affect your credit score. You can meet your needs with cash in your accounts within 30 minutes. Moreover, the personalised repayment plan helps avoid any surprises. You can instead ensure regular payments without financial trouble. What could be better than getting instant cash without affecting finances?
Credit card providers charge customers daily interest. It is regardless of how many things you buy on credit. Check the minimum fee you must pay regardless of your purchases. Alternatively, one takes a personal loan with a purpose. Hence, you don’t pay any unnecessary fees. However, with personal loans, you pay interest on your funds. You don’t need to pay anything if you pay the dues in full.
Your credit card bill and interest may vary each month. A revolving credit provides access to funds restricted by a credit limit. Thus, you must make minimum payments on credit cards to keep the interest and balance low.
Bottom line
These are some best benefits of relying on personal loans during Christmas. Be it a short-term, medium or emergency need, the loan fits the situation well. It helps you avoid costly interest rates that you encounter with credit cards. Instead, you can rationalise more financial freedom with personal loans. You can groom it according to your needs and financial habits. It prevents you from facing surprise costs.