The amount of people choosing personal loans over credit cards has increased, but why?
Since the recent recession, experts have seen a sharp increase in the amount of people looking to small personal loans or lines of credit rather than credit cards. Is this because people have less trust in credit cards these days, or simply because they are not quite as fashionable as they once were?
Perhaps it’s because such alternatives offer more financial control, or because they allow consumers to pay off expenses such as credit card debt or student loan debt once and for all. The upsurge could simply be related to the economic situation, with credit card companies looking to limit spending and chase debts.
What is clear however is that personal loans are in demand more than ever before. So, what is a personal loan, and what makes it such an attractive option when placed alongside the convenience of your average credit card? Well, as with credit cards, personal loans and lines of credit are an unsecured source of funds. This means that they are not put up against collateral – an asset, such as a house or car – as a guarantee that the lender may then seize in the case of a default. Personal loans can be spent any way the borrower wishes, and paid back usually as a fixed monthly payment.
The main draw of a personal loan or line of credit over a credit card is that the average APR is much lower than on credit cards. The gap between these average rates is also widening. Another reason borrowers may prefer to seek out a personal loan rather than apply for a credit card is that with a loan, you know exactly where you stand. Budgeting is easier with set monthly payments, and there is a clear beginning and end. With credit cards, on the other hand, they could be susceptible to fluctuating rates – meaning that you may have to pay more each month. Expect the popularity of loans to continue increasing, as lenders look for new and innovative ways to attract new borrowers.