If you’ve been backed into a corner and need to choose between an installment loan or credit card, then we’re here to help.
These can be trying times with a pandemic and the ongoing inflation crisis; it could put some people in a short-term cash crunch.
If you have less than stellar credit, it’s possible you may need to explore other financing options—such as an installment loan or credit card. To help you decide between these two, we’ve put together this guide that summarizes their key differences and what you should consider when choosing one.
Let’s agree on one thing first: both of these options offer a way to get you the funds that you need. They might have different terms and provisions, but these can help you when you’re short on funds.
Now let’s move on to how they differ: their repayment terms.
Credit cards are considered as revolving accounts that you can borrow money from. As long as you stay in good standing with your credit card provider, you can tap into this whenever you need it. After which, you will pay each month based on your outstanding balance. If you pay your balance in full each month, you won’t pay any interest.
Installment loans, on the other hand, refer to borrowed funds that let you take a lump sum of money from a lender. You can pay for this over a prespecified time range with interest payments. Depending upon the amount financed and which state you live, the terms can range anywhere from 3 months to 2 years.
Credit cards are best used for smaller purchases and recurring bills. What’s great about using one is that they are essentially free short-term loans. This means that as long as you pay off your monthly balance before it is due, you will not incur any added interest.
You can use this as a backup from when there is an urgent need for money that you don’t have (as long as it stays within your credit card balance). The only downside to this option, however, is that it really tests your self-discipline. It’s convenient, yes, but its convenience also becomes a problem if you keep on swiping your credit card and simply paying the minimum balance each month. Over time, the interest rates will multiply, and you’ll find yourself with a revolving debt problem that will be hard to solve.
Installment loans are best for a situation that requires a quick lump sum of cash. Say you need to repair your car, or you have a medical bill due; an installment loan could be a good option.
An installment loan doesn’t allow you to pay less than the regular installment, so it could keep you from creating a revolving debt issue. What’s great about it is that you will be required to pay the same amount of money every due date. This will allow you to build your budget around your repayments. It’s important to make sure the loan term and subsequent payments are something you can handle so you won’t default on the loan.
One downside to this option is that it does not offer rewards like most credit card companies do. Some installment lenders offer lower rates with a good payment history so it would be worth asking the question.
The answer to this will depend on what the money is for coupled with your repayment capacity. If you’re able to pay right away without incurring interest, then using a credit card would be the best option for you.
If you need to borrow a little larger amount and would like to repay the money in steady increments over time, then an installment loan might be the answer.
Need money fast? Lending Bear can offer you legal rates and a quick turnaround time. Ask us more about our services by visiting our website or giving us a call today.