What is the Difference Between Personal Loans and Credit Card Loans?

Rumzz Bajwa

Personal loans are given to a person as a lump sum, and then the person is required to pay regular amounts each month until they clear the entire amount. On the contrary, a credit card is a line of credit and a revolving balance. The revolving balance is calculated based on the person's spending with the credit card or involved bank.

While that is the major difference between these two kinds of advances, there are other minor differences.

The problem may not be in knowing the types of loans but in choosing. However, in a nutshell, a personal loan is a more presentable option than a personal loan for the self-employed. These people can also get credit card loans, but there are more challenges under self-employment status than on white-collar employment.

Photo by Frederick Warren in Unsplash

Both financing options are unsecured types of loan products and can be used to pay for anything. Besides, the amount applied and qualified for depends on the creditworthiness and financial condition of the applicant. If you have a better repayment history in both cases, you will qualify for or access a higher limit. In both cases, the determinant for the awarded limit is the credit score.

However, here are the main differences between personal advances and credit card advances.

Differences Based on Qualifications for the Loan

Qualifying for a personal loan is easier than a credit card loan for those with a bad credit score. It is also easier to get approved for a personal loan than a credit card loan with a good credit score. In some cases, you might need to adhere to specific credit card protocols in the latter case. In the former, most providers have easier and quicker application procedures and processing. Some do not require a lot of details to get money for your business or personal needs and are flexible regardless of whether you are self-employed or in official employment. Giggle Finance provides up to $5,000 to freelancers and anyone in the gig economy instantly.

Differences Based on Costs

Personal loans are considered more expensive than credit card loans. This is so especially if you have a low or bad credit rating. The interest rate depends on the provider of the personal loans for self-employed - some do overcharge, while others undercharge. However, these capital sources carry a much lower interest rate than credit cards on average. The annual interest rate percentage on personal financing ranges between 6% to 36%. Some of these funding options also carry origination fees. Therefore, it is important to check if your provider does charge such an origination fee.

In contrast, most credit card advances have a 16% interest rate charge. However, there is a higher likelihood for a private lender offering private financing to overcharge than a credit card funding provider. These are most suitable when you need money for small expenses.

Differences Based on How They Affect Credit Rating

Most lenders in the gig economy, including freelancers and independent contractors, should prefer personal loans because they do not usually affect the credit as much as credit card loans. This is because they have a fixed monthly payment agreed on by the borrower. There is no option to pay a lesser amount.

In comparison, once you get money through a credit card advance, you choose whether to pay the balance in full on a credit card loan. Making timely payments affects your credit score on a credit card loan. Timely payments on credit card loans affect the credit score more quickly and make timely payments on a personal loan.

Differences Based on Borrowing Limits

Depending on the credit rating, you may qualify for up to $100,000 on the upper end of personal advance. Otherwise, very few of these lenders provide more than what credit card capital funding can provide. Most do not. On average, you get a limit of close to $20,000 on a credit card loan. Giggle Finance funds self-employed with up to $5,000 for their business and personal needs.

Differences Based on Application Suitability

Personal funding is best for situations when you want to finance large and one-time expenses. A good example is a home improvement project. This is because they are not designed to be taken frequently. If you can make regular monthly payments on a long or loan term, a personal loan is preferable. Otherwise, your credit score gets hit when you fail to pay.

This capital source is also suitable for consolidating large, high-interest debts. Since they are classed as low-rate advances with a low APR, personal loans are more affordable. They can be used to reduce the principal quickly.

On the contrary, credit card financing is more suitable for financing smaller expenses. If you need money for regular spending and which you can pay off quickly, then it is better than personal funding. Paying off the entire capital amount each month also helps you avoid interest. They are more preferable if you want to pay for anything without interest.

What’s Next?

Now that you know the difference between the two, you’ll be able to make better financial decisions for your business. Before applying, be sure to evaluate your business; know what you need so you can maximize the loan you get.

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Rumzz is a digital strategist and content marketer. She enjoys spending time with her family. She loves to go out and experience new moments whenever they came to light. Rumzz discovers satisfaction in investigating new subjects that help to extend her points of view. You can frequently locate her immersed in a good book or out searching for a new experience.

New York, NY

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