3 Times You Should Choose a Personal Loan Over a Credit Card

3 Times You Should Choose a Personal Loan Over a Credit Card

Written by Caitlin Wood
Last Updated April 9, 2020

We’ve all been in a situation where we need to buy something right away but the cash just isn’t there, whether it’s for school, a gift or an emergency sometimes charging it seems like the best and easiest option. Credit cards aren’t always the answer to all financial problems and as a matter of fact, they rarely make the situation better. Credit cards can and will make most financial problems you’re having worse. Next time you’re thinking about charging something important or something you can’t afford, consider taking out a personal loan instead. A loan probably seems like a lot of work but in reality, it’s no more difficult to apply for than a new credit card, here are 5 situations when you should choose a personal loan over a credit card.

1) When you’re concerned about your credit score.

Medical expenses like dental work and new eyeglasses are extremely expensive and often not covered by all types of medical insurance; therefore people often choose to charge those expenses. Unfortunately, the high costs of these medical expenses can hurt your credit score. Here’s the situation, if you have a $4,000 medical bill and charge it to a credit card that only has a $5,000 credit limit you’ll be using 80% of your available credit. One of the most important factors in determining your credit score is your credit utilization ratio: the ratio between available credit and used credit. If you constantly have a maxed-out credit card or a card that only has a small amount of unused credit your score will be negatively affected. Generally speaking, a good ratio to have is 90% available credit and 10% used credit.

This is where a personal loan can help. Loans or credit accounts will show up on your credit report as either installment or revolving. Credit cards are revolving and personal loans are typically installment, the “utilization ratio” doesn’t apply to installment loans so you won’t have to worry about it negatively affecting your credit score. In fact, personal loans with installment payment plans will help you improve your score and show that you are responsible with your finances.

2) When you can’t trust yourself.

Sometimes credit cards with large credit limits can be extremely tempting especially when the minimum payment is often so low. Falling into the minimum payment trap is exactly what credit card companies want you to do, this way they make more money from all the interest that you’ll end up paying. If you need to pay for something important but can’t trust yourself to use your credit card responsibly and not continue to charge other things then you should consider getting a personal loan from lenders like easyfinancial to cover your expenses.

Getting a personal loan to cover a specific cost means that you’ll only have access to the exact amount of money you need and won’t be tempted to spend it on something frivolous. Furthermore, a personal loan has a set repayment plan and due date, this means you’ll be able to make affordable monthly payments and won’t be in debt indefinitely. You’ll also save on interest as personal loans typically only take three years to repay and credit cards can take significantly more especially if you’re only making the minimum payments.

3) When you realize you’re paying too much interest.

In recent years there have been laws and regulations put into effect to prevent credit card companies from exploiting their customers. Unfortunately, this doesn’t mean that all companies provide credit cards that have the consumers’ best interests in mind. Interest rates on credit cards can often be very high and if you’re unable to pay your balance completely every month you’ll end up spending too much money on interest. This can become an even more serious problem if you have a variable interest rate credit card where your interest rate fluctuates.

On the other hand, if you apply for a personal loan with a fixed interest rate you’ll always know how much interest you’ll be paying and there won’t be any surprises. Personal loans often have interest rates that are lower than some credit cards and payment plans that make it much easier to manage your finances.

4) When you want to consolidate your debts

Personal loans usually have lower interest rates than other credit products, which makes it ideal for consolidating high-interest debts. Moreover, consolidating your debts means you’ll only have to worry about making one payment a month instead of five or however many debts payments you were making. If you find yourself in a situation where you can’t keep track of all your payments or if you’re simply looking to save on interest, a personal loan can save you money and help you manage your debts.

Personal Loans Application Check List

5)When you need to cover a large expense

Sometimes life gives us lemons, other times it gives us unexpected expenses that can cause financial distress. When you have a financial emergency, a personal loan can often help you cover the expense without having to drain your savings.  A personal loan will allow you to spread your cost over a period of time at an affordable rate. Moreover, you won’t have to worry about making a big lump sum payment that could affect your financial stability, as you would with a credit card.

Apply For a Personal Loan

Applying for a personal loan can be just as easy as applying for a new credit card. You can start the process today with Loans Canada and have the money you need within a week.

Rating of 5/5 based on 1 vote.

Caitlin is a graduate of Dawson College and Concordia University and has been working in the personal finance industry for over eight years. She believes that education and knowledge are the two most important factors in the creation of healthy financial habits. She also believes that openly discussing money and credit, and the responsibilities that come with them can lead to better decisions and a greater sense of financial security. One of the main ways she’s built good financial habits is by budgeting and tracking her spending through the YNAB budgeting app. She also automates her savings so she never forgets to put aside a portion of her income into her TFSA. She believes investing and passive income is key to earning financial freedom. She also uses her Aeroplan TD credit card to collect Aeroplan points so that she can save money when she travels.

Click on the star to rate it!

How useful was this post?

Research & Compare

Canada's Loan Comparison Platform

Largest Lender Network In Canada

Save time and money with Loans Canada. Research and compare lenders before you apply. Share your experiences with Canada's top lenders.

Make Smarter Borrowing Decisions

Whether you have good credit or poor credit, building financial awareness is the best way to save. Find tips, guides and tools to make better financial decisions.

Save With Loans Canada

Special Offers

50 Free Trades Offer

50 Free Trades Offer
Ends August 31st, 2022

Almost $500 in commission-free trades. Code “50TRADESFREE”. Conditions apply.

View Offer
Borrow Today, Don’t Pay Till July

Borrow Today, Don’t Pay Till July
Limited Time

Borrow $500-$50,000 from Fairstone by May 31 and don’t pay until July.

View Offer
Build Credit With Refresh

Build Credit With Refresh

Build credit while spending money with the Refresh Financial VISA card.

View Offer
Build Credit For $7/Month

Build Credit For $7/Month

With KOHO’s prepaid card you can build a better credit score for just $7/month.

View Offer
Industry Spotlight

What's happening with Canada's credit industry?

addy ⎯ Making Real Estate Accessible To All Canadians

addy ⎯ Making Real Estate Accessible To All Canadians

Check out our interview with addy; a platform that allows Canadians to invest in different properties across Canada with as little as $1.

Read Post
Find The Best Rate
In Your Region
Best Personal Loan Provider by Greedy Rates

Confidential & risk-free

All consultations and conversations with Loans Canada and its partners are confidential and risk-free. Speak with a trusted specialist today and see how we can help you achieve your financial goals faster. Loans Canada and its partners will never ask you for an upfront fee, deposit or insurance payments on a loan. Loans Canada is not a mortgage broker and does not arrange mortgage loans or any other type of financial service.

When you apply for a Loans Canada service, our website simply refers your request to qualified third party providers who can assist you with your search. Loans Canada may receive compensation from the offers shown on its website.

Only provide your information to trusted sources and be aware of online phishing scams and the risks associated with them, including identity theft and financial loss. Nothing on this website constitutes professional and/or financial advice.

Your data is protected and your connection is encrypted.

Loans Canada Services Are 100% Free. Disclaimer

Keep Track Of Your Credit Score

Subscribe with Credit Verify to monitor your credit rating and get your free credit score.