If you have a large purchase or expense to make, and are considering breaking out your credit card, you should beware of a few things before you do. Credit card interest rates these days often soar as high as 29.99 percent is one reason a credit card might not be the best option for you. Another reason is that large purchases, a few thousand or more, will utilize much of your available credit, which will sink you credit score. Credit scores are computed using a variety of factors, but one main factor is your credit utilization. Your credit utilization is whatever credit available via credit cards or lines of credit that you have open that you are using. This means if you have a total available credit limit of say $10,000 but need a large purchase of say $7500, your credit utilization will now be 75%, which would tank your credit score considerably. Loans on the other hand differ from this other type of credit, so loans will not tank your score like using credit cards would.
If you have good to excellent credit, a personal loan might be the better option for you. If your credit score is only fair or poor, you might struggle to find a good interest rate, but you would still be protecting your credit score by using a loan for large purchases or expenses, instead of utilizing your credit cards. You should not confuse payday loans however with personal loans, as each of these two types of loans vastly differ. Personal loans can offer fair interest rates, while payday loans are more of a predatory type of lending with interest rates that can soar well past 400%. If you do opt to go for a personal loan, great care needs to be taken in picking the right lender, other wise that personal loan could end up costing you more than you had bargained for. It is vital to understand the terms and conditions, as well as any fees involved before signing on the dotted line for your loan.
If you do opt to go for a personal loan, you will have two basic choices, secured and unsecured personal loans. Each has their own pros and cons. Secured personal loans are secured with collateral such as property or a car, and they offer less interest generally, in exchange for securing the loan. Unsecured personal loans on the other hand are secured with nothing more than your signature and a promise to repay the loan as agreed upon. Since unsecured personal loans have nothing but your word backing it, they tend to carry a higher interest rate. The choice here amount to risking losing an asset if you should default in exchange for a lower interest rate, or taking the higher interest rate in exchange for security in knowing your assets are protected. With either type of loan however, failure to make payments on time will damage or severely tank your credit score.
If you do opt for a personal loan over a credit card, you still have more options to think about. Where will you find your lender? Banks come to mind, but banks often do not have our best interests at heart. Credit unions on the other hand often offer a lower interest rate, but you have to be a member in good standing to qualify, which could take to long if you are not already a member of one. Online is the next place to look, and offers several key benefits. One benefit is being able to look from the comfort of your own home. Another is that many of these lenders will allow you to check your rate without even affecting your credit score. The last being that online lending is very competitive so deals can be found more readily. If you want to find reputable online personal loan lenders, look no further than the reviews featured on this website.