12.07.2024

Personal loan or credit card: which is better?

Today we’re going to talk about a subject that I’m sure has crossed many of your minds: personal loan or credit card, which is the better option?

After all, it’s always good to be informed when it comes to handling your money, isn’t it?

So relax, grab a cup of coffee and let’s dive into the financial universe, because today’s chat is going to be a long one!

Personal loan: what is it and how does it work?

A personal loan is a type of credit where you borrow money from a financial institution, be it a bank, a fintech or a cooperative.

And, like everything in life, this money isn’t free, you’ll have to pay interest and fees on the amount you’ve borrowed.

Advantages:
  • Flexibility: you can use the loan money for any purpose, be it to pay off debts, renovate your home, invest in your own business or even take that dream trip.
  • Installments: personal loans can usually be paid in several installments, which can make repayments easier.
  • Interest rates: interest rates on personal loans are often lower than those on credit cards, especially if you have a good relationship with the financial institution.
Disadvantages:
  • Bureaucracy: depending on the institution, the process of applying for a loan can be bureaucratic and time-consuming, requiring various documents and credit analysis.
  • Income commitment: the loan installments take up part of your monthly income, which can compromise your budget.

Credit card: what is it and how does it work?

A credit card is an electronic means of payment that allows you to buy products and services on credit, i.e. you pay for them later. Generally, financial institutions offer a pre-approved credit limit, which varies according to the customer’s credit analysis and profile.

Advantages:
  • Ease and practicality: credit cards are accepted at practically all establishments and websites, making it much easier to make purchases.
  • Installments: it is often possible to pay for purchases on a credit card in installments, which can help you not to commit your entire income at once.
  • Loyalty programs: many credit cards offer loyalty programs, where you earn points with every purchase you make and can exchange them for products, services or air miles.
Disadvantages:
  • Interest rates: credit card interest is usually high, especially in the case of minimum bill payment.
  • Annuity and fees: many credit cards charge an annuity and other fees, which can make the cost of the card more expensive.
So, personal loan or credit card: which is the best option?

Now that we’ve talked a bit about each of these means of credit, the question remains: which is the best option for you? The answer is: it depends! Let’s look at a few situations to understand better:

  • If you need money for a specific purpose and don’t need it urgently, perhaps a personal loan is the best option, as you can get lower interest rates and a longer repayment period.
  • If you need to make a one-off purchase and have the possibility of paying the full amount of the bill next month, a credit card may be a good option, especially if you take advantage of the benefits of loyalty programs.

It’s important to remember that each person has a different financial reality and consumption profile. That’s why it’s essential to take a good look at your situation before choosing between a personal loan or a credit card.