Purchasing electronics, home appliances, or furniture, or paying for education expenses or major repairs, can put significant pressure on your monthly cash flow. And during these situations, when you want to keep your savings for some future goal, two of the financing options that are most preferred are personal loans from personal loan apps or credit cards.
Even if both options provide access to funds, they differ in terms of interest rates, repayment period, fees and how quickly you can repay the amount. So, when you are in a situation where you have to choose one, it is important to understand these factors and make an informed decision between a credit card and the best personal loan for a big purchase.
1. Compare Interest Rates
One of the biggest factors in determining the overall cost of borrowing is none other than interest rates applied to it.
Opting for credit cards can be pretty convenient for purchases, especially when you repay the entire outstanding balance within the applicable interest-free period. But when you carry the balance beyond the due date, it can result in substantial interest costs.
On the other hand, personal loans involve fixed interest rates, making the repayment cost much easier and you can make an estimate from the beginning.
For a large purchase that will take several months to repay, it is important to compare the effective borrowing cost rather than simply look at convenience between credit card payments or personal loans.
2. Consider How Long You Need to Repay
The factor that makes a major difference to affordability is the repayment tenure.
Unless you convert the purchase into an EMI plan, a credit card may require repayment in full quickly. But with personal loans, borrowed funds are converted into fixed EMIs, which help borrowers manage their budgets and repay the loan seamlessly.
When you choose a shorter tenure of repayment, it increases monthly EMIs but decreases the cost of interest; in a longer tenure, the repayment amount becomes less, but the interest increases.
So, when looking for low interest loan application, ensure that the repayment period matches your budget so you don’t have to strain your savings.
3. Check Credit Card EMI Costs
If you are considering choosing a credit card, before that, make sure you understand the complete cost, as converting a large card purchase into EMIs can be convenient, but sometimes people misunderstand it and end up paying more.
Only when it is repaid in time can a credit card payment be cost-effective. However, in future, the economics may change, and it gets converted into a costly repayment plan. Ensure you check for:
- Applicable interest rate
- Processing or conversion fees
- Taxes and other charges
- Prepayment or cancellation conditions
- Total amount payable
- Number and value of EMIs
4. Evaluate Personal Loan Fees
In addition to interest rates, a personal loan includes certain charges like processing fees, applicable taxes, late-payment charges and prepayment or foreclosure charges. It totally depends on the lender and the loan agreement.
So, make sure that you calculate the total repayment amount and not just compare the interest rates alone.
5. Think About the Purchase Size
It makes more financial sense when you know the amount you need to borrow for the purchase.
For smaller purchases, credit cards work pretty well as they get cleared quickly. But for larger expenses that you want to pay in monthly structured EMIs, personal loans quick apps offer greater predictability.
Hence, the right choice depends on the amount you want, the credit limit available, the interest rate, tenure and most importantly, your repayment capacity.
6. Don’t Ignore Interest-Free Period
When the entire outstanding balance is paid by the due date, credit cards may offer an interest-free period on eligible purchases. So, when you have sufficient funds to clear the bill, this makes them an attractive option.
Similarly, some personal loan products may offer promotional benefits. For instance, eligible Stashfin customers may receive an interest-free period of up to 30 days, subject to applicable terms and conditions.
7. Compare Monthly Repayment Obligations
Based on spending, outstanding balances, and repayment behaviour, a credit card bill can fluctuate alot. On the other hand, the best personal loan have a predetermined and fixed EMI, which makes it easier for an applicant to plan beforehand and incorporate EMIs into their monthly budget.
When comparing the two options, consider this:
- Can you comfortably afford to pay monthly payments?
- Are the repayments affecting your essential expenses?
- Can you save while repaying?
- Do you already have other debts to pay?
Conclusion
There is no universal answer. A credit card can be cheaper for a purchase when you can repay the full balance within the applicable interest-free period. For a larger expense that requires structured repayment, a personal loan may offer greater predictability and potentially a lower overall borrowing cost, depending on the terms.
Stashfin provides a 100% digital borrowing experience with instant approval and fast disbursal, no manual paperwork, and an interest-free period of up to 30 days, subject to eligibility and applicable terms. Whether you choose a personal loan app, credit card, or another financing option, compare the complete cost and borrow only what you can comfortably repay.
