Credit cards and personal Loans are two of the most forms of loans people take to manage their cash crunch. Both credit cards and personal loans come with the highest interest rates and while you may not accrue any interest as long as you do not revolve any credit in a credit card and payoff the entire balance each month, most of the times, people do revolve credit and hence pay a lot of money that goes towards the interest rate.

So how do you choose between a credit card or a personal loan and when should you choose which one? The first thing you need to figure out is determine the amount of money you need to borrow and how much money can you afford to repay each month. If your loan requirement is for a shorter duration and you will be able to repay the amount quickly, going for a credit card is better. However, if your loan requirement is bigger and you will need more time to repay the borrowed amount, going for a personal loan sounds a better choice.

Both credit cards and personal loans are unsecured loans, as they do not require any collateral as such. Credit Card Offers involve the highest amount of interest rate that you will ever have to pay, which is at times at 24% and above per annum. Whenever you spend money on your credit card, you are required to pay within 20 days from the next statement generation date to pay the balance in full. You can choose to pay the full outstanding or just the minimum due each month. However, if you revolve balance and only pay the minimum due, your balance will accrue interest. Interest for credit cards is payable on the average daily balance and not calculated on the outstanding balance at the end of the month. Credit cards also offer various reward options and other benefits from time to time, which you can use as part of the additional services. However, do keep in mind that credit cards have an annual fee and depending on the card type and its services offered to you, the annual fee will vary.

Unlike credit cards, personal loans allow you to receive a lump sum amount at one go while you get to repay the amount in monthly installments known as the EMI. Your EMI payments each month are a combination of the principal outstanding as well as the interest. Personal loans are a great choice for longer tenures as the interest rates on personal loans is way lower than that on credit cards. Also, unlike credit cards, personal loans do not have extra charges such as an over limit fee or service taxes every month that you need to pay. There is also no card renewal fee, which is usually charged by credit cards on an annual basis. Look for a personal loan from a bank that offers no penalty on part or pre payment.

Therefore, whether you opt for a credit card or a personal loan, it is important to weigh your options and choose which is best as per your individual needs and your monthly expenditure. Keep in mind that both credit cards and personal loans are responsible for the maintenance of your Credit Score and any defaults on either can have adverse effects on your credit history. So, whichever option you choose to take care of your finances, ensure that you are able to repay on time and build a good repayment history, as both are good opportunities for building credit score.

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