According to the FIS Global Payments Report 2023, credit cards accounted for a whopping 42 percent of e-commerce transactions in 2022, followed by digital wallets at 32 percent and debit cards at 11 percent. Despite the advantages conferred by credit cards, whether it’s the convenience or the opportunities for rewards, personal loans can be a superior alternative.
Today, we’ll explore 4 ways personal loans are better than credit cards.
In a study conducted by two professors at the Massachusetts Institute of Technology (MIT), involving a group of randomly selected individuals who were offered the opportunity to purchase highly desirable tickets, it was found that those who were required to pay by credit card were willing to pay double the amount compared to those who would have to pay by cash.
Credit cards, by their very nature, as a revolving line of credit, can be tempting to use repeatedly. Studies suggest that this is because it is less psychologically painful to spend future money than present money. With personal loans, you receive the money in a lump sum. Since you can’t add to the balance, this can help prevent overspending, and, in turn, accumulating more debt.
Interest rates on most credit cards are variable, depending on factors such as the nature of the purchase, the cardholder’s credit score, market conditions, and the issuer’s policies.
To illustrate, let’s consider the Annual Percentage Rate, which is the interest rate charged on credit cards. Many credit cards have more than one APR listed, tied to elements like purchases, outstanding balances, withdrawing your credit limit in cash. Coupled with the fact that credit card interest compounds, this can make it difficult to budget effectively.
Personal loans, in contrast, often come with predictable payments and fixed interest rates. These set terms make it much easier to budget and plan your finances accordingly, because you’ll know exactly how much you need to pay each month.
If you’re struggling under the weight of multiple high, interest debts, it is far better for you to consolidate them with a personal loan than with a credit card. In fact, the aforementioned benefits, whether it’s the reduced temptation to spend (and the subsequent danger of accumulating debt), ease of budgeting, and the lower interest, make it a better option for debt consolidation.
As always, we recommend comparing and contrasting loan options from multiple lenders to get the most favourable options. With Lendingpot, this is easier than ever. All it takes is a single application to gain access to more than 45+ lenders on our platform.
As you’ve no doubt come to realise, there’s a strong correlation between interest rates and the cost of borrowing. When an interest rate is high, the cost of borrowing increases, and vice versa.
Personal loans typically offer lower interest rates compared to credit cards due to their structured payment plans and designated loan terms. Why? Because banks perceive personal loans as less risky because they are predictable: the amount borrowed, the repayment schedule as well as the loan terms are more clearly defined, unlike with credit cards.
While both personal loans and credit cards have their place in personal finance, personal loans offer several distinct advantages that don’t often get lauded enough, whether it’s lower interest rates or the lesser temptation for additional spending.
Trusted by over 7,000 customers, Lendingpot aims to help individuals get the best outcomes in approvals and pricing. We credit our success to an emphasis on prioritising each individual’s needs, with financial products that are cheaper, faster and better overall. Apply today!
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