Advantages & Disadvantages of Short-Term Loans Over Credit Card Use

When people face short-term borrowing needs, they typically must choose between getting a short term loan or using one or more credit cards. Borrowers should examine the pros and cons of each choice to make the best decision. The timing and amount of money needed will often indicate which is the better option.

Considerations

The reasons and amounts of money needed should be the prime considerations of borrowers. If the funds are needed immediately, using one's credit cards gives the most advantage since cash advances are available instantly. Should the need not be immediate, a short-term loan may provide better terms.

Features

Credit cards can generate instant funds while short-term personal loans may take a few days. Typically, using credit cards will cost one more in interest rate and other fees. If one's credit score is good, a short-term personal loan will offer lower rates and fees.

Time Frame

If a borrower is already a good bank customer, a short-term personal loan may be the best choice as funds may be ready in 24 hours. However, in the event of financial emergencies, credit cards will offer the best time frame since access to money is immediate.

Effects

A disadvantage of using credit cards is the reduction in the amount available to borrow since advances are deducted from one's credit limit. Conversely, a short-term personal loan has no effect on credit card borrowing maximums.

Benefits

A short-term loan is best for a lower interest rate. Credit cards, however, allow more immediate and easy access to money.

Resources

• Learn More About Short Term Loans