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Credit Cards vs. Personal Loans

Most people need (or want) to make a purchase at some point that is more than the cash they have available. Do you wait until you have the money saved, pull out a credit card, or go to the bank for a personal loan?

When should I use a credit card?
Using a credit card can have positive outcomes for disciplined consumers. If used irresponsibly, they can trigger lower credit scores, higher interest rates, and unsecured debt that adds up quickly.
 
A credit card is a loan called a revolving line of credit. You are authorized to borrow up to a predetermined amount. When the full balance is paid upon receipt of your statement, you are not charged interest. If only a portion of the amount due is paid, you are charged interest on the remaining balance.

Generally, credit card interest rates are higher than bank loan interest rates. Responsible credit card use can strengthen consumers’ credit histories if they have yet to establish credit. In this scenario, you obtain a credit card with a small limit. Charge regular purchases, like gas, and pay the balance in full each month. Doing this helps establish your credit history, showing that you can responsibly borrow money and repay it. Establishing credit is beneficial when you want to borrow funds in the future for larger purchases like a vehicle or home.

Credit card companies sometimes offer a 12-month, no interest incentive for large purchases like appliances or furniture. It is crucial to understand the terms and conditions regarding these incentives before making the purchase. If you miss a monthly payment or do not pay the complete balance during the term, you may be charged all the interest waived during that period.

Credit cards can offer a secure way to make online purchases where fraud tends to be higher. If fraud occurs on your debit card, the money has already been withdrawn from your checking account until you dispute the charge. If fraud occurs on your credit card, you still have access to the funds available in your checking account until you pay this bill and dispute the fraudulent charges on your credit card.

When should I use a personal loan?
Common uses for personal loans are vehicle purchases or repairs, small home improvements, and debt consolidations. Personal loans are a good option for those who are financially stable enough to qualify for the credit, understand the details and repayment terms, and commit to the repayment terms.

There are two types of personal loans – secured and unsecured.

A secured loan is one that is backed by collateral – financial assets you own like a home, car, or equipment. This collateral can be used as payment if you don’t pay back the loan. Secured loans tend to have more competitive rates than unsecured loans.

An unsecured loan does not require collateral. Approval is based on a review of your credit history as well as other factors.

Is there a minimum I must borrow for a personal loan?
The Friendship State Bank does not require a minimum amount to borrow for personal loans. Keep in mind that there is a loan origination fee that you pay upfront. This fee helps cover bank expenses related to the loan. Smaller loan requests may not be beneficial to some customers. It is always good to speak with your lender who can help determine the best options for your situation.

How do I apply for a personal loan?
Apply for a personal loan by completing an online application or scheduling an appointment with a loan officer. Depending on how you will use the loan, you may be required to provide a month’s worth of pay stubs, bill of sale for a vehicle purchase, vehicle title, and verification of insurance.

If you meet with a lender in person, they will complete the application and ask you to sign, authorizing them to review your credit history.
 
Before agreeing to a loan, ask about the interest rate, term, monthly payments, and potential prepayment penalties that affect your loan request.

Most personal loan requests made at The Friendship State Bank are approved and completed on the same business day. Friendship’s local lenders assist you with the entire application, approval, and repayment process.

Friendship lenders can help a new customer looking to build credit. They can offer guidance for the customer seeking to repair credit history. They can help an established borrower with the purchase of a new vehicle or a home. Regardless of the need, they are ready to build a relationship to learn what options best fit your needs for today and your needs in the years to come.
 
Give us a call today at 812-667-5101.