When you need money to cover an emergency or just make a last minute purchase, it is normal that you go first to your credit cards; however, with the number of fast loan services that exist today, it is worthwhile to try other options, including personal loans.
That is why, in this article, we are going to analyze the advantages and disadvantages of taking unsecured loans instead of using your credit card to request advances in the bank.
The unsecured loans are a much requested financial service, the next time you need quick money you will have much more clear what type of loan you need.
What Are Unsecured Loans
The guarantee of a loan is a patrimonial effect of the borrower that in the case of default would happen to the lender so that he could recover his money and obtain the interest that the borrower promised to pay.
Generally, we talk about the following types of guarantee:
Personal guarantee: It means that if the borrower does not pay, the lender goes against his assets both present and future.
Real guarantee: It occurs when a specific asset is placed under guarantee to cover given the possibility of default.
In the case of unsecured loans, you will not have to present any prior guarantee at the time of contracting. However, this does not mean that you are free to make the payments, in case of default a contract still stands, and ultimately a court can force the seizure of property.
Advantages of Unsecured Loans
- One of the most important advantages of unsecured loans is the speed. In loans where there is a guarantee, a large lender usually runs a lot of paperwork.
- Another essential advantage is that, if the borrower does not pay according to his obligations, all his assets are by default part of the lender’s warranty, but as this is a more flexible figure, the lender could allow an agreement.
- Additionally, unsecured loans are again much faster than traditional loans. Since the lender has no need to check collateral, and usually only require personal documents.
- Finally, unsecured credits, being much lighter than other credit agreements are accessible through the Internet, on lending sites like Cash Kitty Loans or YourPayday.
Disadvantages of Unsecured Loans
- The main disadvantage of an unsecured loan is that the interest is higher. This is because if the borrower does not pay, the lender will have to make greater efforts to get their money back.
- This should not mislead you. Whatever type it is, if you do not pay a loan you will have problems and ultimately a court can order the seizure of your assets.
- Another disadvantage is that the amounts available on unsecured loans are usually smaller.
Is a Personal Credit or Credit Card Better?
The answer will depend on what you want to buy and how you intend to pay it.
Usually, credit cards and unsecured loans have interest rates in similar ranges, although thanks to the possibility of negotiating interest at the time of the contract, it is possible that a personal loan guarantees lower fees than using your credit card.
Below, we present the differences between credit cards and loans so you can consider which one is most convenient when looking for money quickly.
Main differences between credit cards and an unsecured loan
- The loans are settled in a single sum, while the credit card can allow you to make advances or purchases from time to time depending on your availability.
- The interest rate for a personal loan is usually from 3% to 35% depending on the agreement and the amount of the loan; On the other hand, credit cards have interest rates between 13% and 30%.
- In both cases, the payments to be settled are made monthly.
- The time to pay a loan or unsecured loan is usually a couple of months and up to a few years; meanwhile, credit cards have a loan line that can be adapted according to availability while you have the card.
- As for the loan limit, the cards are limited by the banks and usually your line of credit will not be greater than $ 50,000; On the other hand, a personal credit without guarantees depends directly on what the lender is willing to loan you according to your data; although they usually will not exceed $ 50,000 or $ 100,000.
Which One Is More Convenient for Me?
A credit card is an excellent option to have extra money on hand when necessary, but if you want to make a quick purchase, or cover an unforeseen event whose value exceeds the normal value of the credit lines.
To put it simply, a personal unsecured loan will be a better option in the next situations:
- One-time expense. Maybe a large purchase, car repair, or even just a small push to start a business.
- Debt consolidation. If you need to rush on payment of other debts, some banks allow the payment via credit card, but this makes the interest rates to go high. Using an unsecured loan to reduce other debts is totally fine and will probably be more cost effective for you once the interests start to hit.
- Emergency expenses. Usually, an unsecured loan, and especially from the loan companies, will give you the money in 24 hours or less and is a more useful tool than most credit card based loans and advances from traditional banks.
On the other hand, if you need a constant source of credit to make additional purchases and pay in installments, or to create an additional credit history, a credit card would be the ideal option to follow.
Choose Based On Your Needs
Depending directly on what you are going to do with the money, a credit card can be more effective and lasting than a loan without interest, although regardless of the case, it is very likely that the interest will always be higher.
When covering an emergency need, making an important purchase or liquidating all or part of other credit responsibilities, using a quick credit can save more than one life.