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Credit Cards vs Loans - Which Should You Be Using in 2020
In the ideal world, we would all be able to pay for everything we want or need upfront with no need to get into debt. Sometimes going into that is unavoidable, or it can be a necessary evil when improving one's quality of life. In any case, there is a lot to be gained by making a few informed choices.
So, take out a loan or put it on the card?
Well, it depends.
Credit cards are convenient for smaller expenditures - the monthly budget needs to be expanded by a bit, a small emergency, an investment or indulgence that can be paid out with a year. And here is the key - within a year. Many cards that offer 0% interest do so for only for a year. Everything beyond that can easily become what bad credit loans nightmares are made out of. It's all in the fine print - the 0% is supposed to look great on a poster, the fine print is where the money is made.
If an average income consumer needs to spend under £1,000 and they can repay that within (sometimes as little as) 3 months, this comes out as a great deal. However, if the same consumer listens to some economists that say that it is fine to have credit card debt as long as they meet minimum monthly payments, they are bound to find themselves in a pickle. Most of the cards offered by UK banks carry an over 20% interest rate, with some of them attaching additional fees.
The other problem with credit cards is a bit more personal. They can come across as easy money, and for a person with little to no self-discipline, it can result in a mountain of personal debt.
But, a credit card can be a good tool for building up a credit score. Many experts advise consumers to keep one and use it to cover regular expenses (ie rent and bills). As long as the balance is paid out every month in full, it can lead to a brilliant financial future.
Which kind of leads us to loans.
Personal loans are ideal for larger expenses. In the UK, the interest rate for the amounts higher than £5,000 hovers around 3%, making it more sense to take one out for that new kitchen than putting it on a card.
When comparing loans, still be aware of the fine print. In most cases, with personal loans, what you see if what you get - the fees, re-payment options and interest are laid out upfront, however, the rates advertised might not apply to every single client. Make sure that the representative outlines exactly how the math works out for you. Some loans also might come with an early repayment fee and depending on your future financial needs, it may be worth adding it to your calculations. A responsible customer is a desirable one and is one that gets better deals if they come back for another loan later on.
Applying for one is a waste of time if the consumer can't meet the basic criteria. They must be 18 or older and living in the UK for at least 3 years, are employed with regular income, good credit history and have an account with the institution they are seeking the loan from. Some banks might have additional or more precise requirements. The open secret is that the better the credit score, the better are both the chances of approval or the deal one can get.
You can check your credit score with sites like Kredit Karma or Clearscore, and improve it or boost it with the above-mentioned credit card tip.